US Consumer Price Index Increased 8.5 Percent in 12 Months Ending in Mar 2022, which is the Highest Increase since 8.9 Percent in Dec 1981, Producer Prices of Finished Goods Increased 15.2 Percent in 12 Months Ending in Mar 2022 and Final Demand Producer Prices Increased 11.2 Percent, United States International Trade, United States Current Account and Net International Investment Position, United States Inflation, Stagflation Risks, Worldwide Fiscal, Monetary and External Imbalances, World Cyclical Slow Growth, and Government Intervention in Globalization
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022.
IC United States Inflation
IC Long-term US Inflation
ID Current US Inflation
IIA United States International Trade
II United States Current Account of Balance of Payments and International Investment Position
III World Financial Turbulence
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
Preamble. United States total public debt outstanding is $30.3 trillion and debt held by the public $23.8 trillion (https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny). The Net International Investment Position of the United States, or foreign debt, is $18.1 trillion (https://www.bea.gov/sites/default/files/2022-03/intinv421.pdf Section II and earlier https://cmpassocregulationblog.blogspot.com/2022/01/increase-in-dec-2021-of-nonfarm-payroll.html). The United States current account deficit is 3.6 percent of GDP in IVQ2021 (https://cmpassocregulationblog.blogspot.com/2022/03/accelerating-inflation-throughout-world.html https://www.bea.gov/sites/default/files/2022-03/trans421.pdf). The Treasury deficit of the United States reached $2.8 trillion in fiscal year 2021 (https://fiscal.treasury.gov/reports-statements/mts/). Total assets of Federal Reserve Banks reached $9.0 trillion on Apr 13, 2022 and securities held outright reached $8.5 trillion (https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). US GDP nominal NSA reached $24.0 trillion in IVQ2021 (https://apps.bea.gov/iTable/index_nipa.cfm). Total Treasury interest-bearing, marketable debt held by private investors increased from $3635 billion in 2007 to $16,439 billion in Sep 2021 (Fiscal Year 2021) or increase by 352.2 percent (https://fiscal.treasury.gov/reports-statements/treasury-bulletin/). John Hilsenrath, writing on “Economists Seek Recession Cues in the Yield Curve,” published in the Wall Street Journal on Apr 2, 2022, analyzes the inversion of the Treasury yield curve with the two-year yield at 2.430 on Apr 1, 2022, above the ten-year yield at 2.374. Hilsenrath argues that inversion appears to signal recession in market analysis but not in alternative Fed approach.
Chart CPI-H provides 12 months percentage changes of the US Consumer Price Index from 1981 to 2022. The increase of 8.5 percent of the US CPI in the 12 months ending in Mar 2022 is the highest since 8.9 percent in Dec 1981 in the beginning adjustment from the Great Inflation.
Chart CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart VII-4 of the Energy Information Administration provides the price of the Natural Gas Futures Contract increasing from $2.581 on Jan 4, 2021 to $6.680 per million Btu on Apr 12, 2022 or 158.8 percent.
Chart VII-4, US, Natural Gas Futures Contract 1
Source: US Energy Information Administration
https://www.eia.gov/dnav/ng/hist/rngc1d.htm
Chart VII-5 of the US Energy Administration provides US field production of oil decreasing from a peak of 12,966 thousand barrels per day in Nov 2019 to the final point of 11.371 thousand barrels per day in Jan 2022.
Chart VII-5, US, US, Field Production of Crude Oil, Thousand Barrels Per Day
Source: US Energy Information Administration
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M
Chart VI-6 of the US Energy Information Administration provides imports of crude oil. Imports increased from 245,369 thousand barrels per day in Jan 2021 to 252,916 thousand in Jan 2022.
Chart VII-6, US, US, Imports of Crude Oil and Petroleum Products, Thousand Barrels
Source: US Energy Information Administration
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTIMUS1&f=M
Chart VI-7 of the EIA provides US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2020. There was sharp increase in production in the final segment that reached consumption in 2020.
Chart VI-7, US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2020, Million Barrels Per Day
https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php
IC United States Inflation. C Long-Term US Inflation. Key percentage average yearly rates of the US economy on growth and inflation are provided in Table I-1 updated with release of new data. The choice of dates prevents the measurement of long-term potential economic growth because of two recessions from IQ2001 (Mar) to IIIQ2001 (Nov) with decline of GDP of 0.1 percent and the drop in GDP of 3.8 percent in the recession from IVQ2007 (Dec) to IIQ2009 (June) (https://cmpassocregulationblog.blogspot.com/2022/04/us-gdp-growing-at-saar-of-69-percent-in.html and earlier https://cmpassocregulationblog.blogspot.com/2022/02/us-gdp-growing-at-saar-of-70-percent-in.html), followed by the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Key percentage average yearly rates of the US economy on growth and inflation are provided in Table I-1 updated with release of new data. US economic growth has been at only 2.2 percent on average in the cyclical expansion in the 50 quarters from IIIQ2009 to IVQ2021 and in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 201 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (https://apps.bea.gov/iTable/index_nipa.cfm) and the third estimate of GDP for IVQ2021 (https://www.bea.gov/sites/default/files/2022-03/gdp4q21_3rd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.9 percent obtained by dividing GDP of $15,605.6 billion in IIQ2010 by GDP of $15,161.8 billion in IIQ2009 {[($15,605.6/$15,161.8) -1]100 = 2.9%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2022/04/us-gdp-growing-at-saar-of-69-percent-in.html and earlier https://cmpassocregulationblog.blogspot.com/2022/02/us-gdp-growing-at-saar-of-70-percent-in.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IQ1988, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989, 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ1992, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993, 3.7 percent from IQ1983 to IVQ1993, 3.7 percent from IQ1983 to IQ1994, 3.7 percent from IQ1983 to IIQ1994, 3.7 percent from IQ1983 to IIIQ1994, 3.7 percent from IQ1983 to IVQ1994, 3.6 percent from IQ1983 to IQ1995, 3.6 percent from IQ1983 to IIQ1995 and at 7.9 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2022/04/us-gdp-growing-at-saar-of-69-percent-in.html and earlier https://cmpassocregulationblog.blogspot.com/2022/02/us-gdp-growing-at-saar-of-70-percent-in.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.4 percent from the pre-recession peak of $9404.5 billion of chained 2012 dollars in IIIQ1990 to the trough of $9275.3 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IVQ2021 and in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021) would have accumulated to 51.3 percent. GDP in IVQ2021 would be $23,849.2 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $4042.9 billion than actual $19,806.3 billion. There are more than four trillion dollars of GDP less than at trend, explaining the 21.8 million unemployed or underemployed equivalent to actual unemployment/underemployment of 12.5 percent of the effective labor force with the largest part originating in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2022/04/increase-in-mar-2022-of-nonfarm-payroll.html and earlier https://cmpassocregulationblog.blogspot.com/2022/03/increase-in-feb-2022-of-nonfarm-payroll.html). Unemployment is decreasing while employment is increasing in initial adjustment of the lockdown of economic activity in the global recession resulting from the COVID-19 event (https://www.bls.gov/covid19/effects-of-covid-19-pandemic-and-response-on-the-employment-situation-news-release.htm). US GDP in IVQ2021 is 17.0 percent lower than at trend. US GDP grew from $15,767.1 billion in IVQ2007 in constant dollars to $19,806.3 billion in IVQ2021 or 25.6 percent at the average annual equivalent rate of 1.6 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.0 percent per year from Feb 1919 to Feb 2022. Growth at 3.0 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 106.8161 in Dec 2007 to 162.3669 in Feb 2022. The actual index NSA in Feb 2022 is 101.4579 which is 37.5 percent below trend. The underperformance of manufacturing in Mar-Nov 2020 originates partly in the earlier global recession augmented by the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 106.8161 in Dec 2007 to 169.1965 in Feb 2022. The actual index NSA in Feb 2022 is 101.4579, which is 40.0 percent below trend. Manufacturing output grew at average 1.8 percent between Dec 1986 and Feb 2022. Using trend growth of 1.8 percent per year, the index would increase to 137.5298 in Feb 2022. The output of manufacturing at 101.4579 in Feb 2022 is 26.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 108.5167 in Jul 2007 to the low of 84.7321 in May 2009 or 21.9 percent. The NAICS manufacturing index increased from 84.7321 in Apr 2009 to 102.5311 in Feb 2022 or 21.0 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 104.6868 in Dec 2007 to 170.4304 in Feb 2022. The NAICS index at 102.5311 in Feb 2021 is 39.8 percent below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 104.6868 in Dec 2007 to 132.9246 in Feb 2022. The NAICS index at 102.5311 in Feb 2022 is 22.9 percent below trend under this alternative calculation. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. In the period from 1929 to 2021, the average growth rate of real GDP was 3.2 percent and 3.1 percent between 1947 and 2021, which is close to 3.0 percent from 1870 to 2010 measured by Lucas (2011May), as shown in Table I-1. From 1929 to 2021, nominal GDP grew at the average rate of 6.0 percent and at 6.3 percent from 1947 to 2021. The implicit deflator increased at the average rate of 2.8 percent from 1929 to 2021 and at 3.1 percent from 1947 to 2021. Between 2000 and 2021, real GDP grew at the average rate of 1.9 percent per year, nominal GDP at 3.9 percent and the implicit deflator at 2.0 percent. The annual average rate of CPI increase was 3.1 percent from 1913 to 2021, 3.4 percent from 1947 to 2021 and 2.2 percent from 2000 to 2021. Between 2000 and 2021, the average rate of CPI inflation was 2.1 percent per year and 2.0 percent excluding food and energy. From 2000 to 2022, the average rate of CPI inflation was 2.4 percent and 2.2 percent excluding food and energy. The average annual rate of PPI inflation was 2.9 percent from 1947 to 2021 and 2.3 percent from 2000 to 2021. PPI inflation increased at 2.1 percent per year on average from 2000 to 2021, 2.7 percent on average from 2000 to 2022 and at 1.8 percent excluding food and energy from 2000 to 2021 and 2.1 percent from 2000 to 2022. Producer price inflation of finished energy goods increased at average 3.3 percent between 2000 and 2021 and at 4.5 percent between 2000 and 2022. These dynamic inflation rates are not similar to those for the economy of Japan where inflation was negative in seven of the 10 years in the 2000s. There is no reality of the proposition of need of unconventional monetary policy in the US because of deflation panic. There is reality in cyclical slow economic growth currently but not in secular stagnation.
Table I-1, US, Average Growth Rates of Real and Nominal GDP, Consumer Price Index, Producer Price Index and Import and Export Prices, Percent per Year
| Real GDP | 2000-2021: 1.9% 1929-2021: 3.2% 1947-2021: 3.1% |
| Nominal GDP | 2000-2021: 3.9% 1929-2021: 6.0% 1947-2021: 6.3% |
| Implicit Price Deflator | 2000-2021: 2.0% 1929-2021: 2.8% 1947-2021: 3.1% |
| CPI | 2000-2021: 2.1% Annual 1913-2021: 3.1% 1947-2021: 3.4% 2000-2021: 2.2% |
| CPI ex Food and Energy | 2000-2021: 2.0% |
| PPI | 2000-2021: 2.1% Annual 1947-2021: 2.9% 2000-2021: 2.3% |
| PPI ex Food and Energy | 2000-2021: 1.8% |
| PPI Finished Energy Goods | 2000-2021: 3.3% 2000-2022: 4.5% |
Note: rates for price indexes in the row beginning with “CPI” and ending in the row “PPI Finished Energy Goods” are for Mar 2000 to Mar 2021 and for Mar 2000 to Mar 2022. The series excluding fuels begins in 2002.
Sources: https://www.bea.gov/iTable/index_nipa.cfm https://www.bls.gov/ppi/ https://www.bls.gov/cpi/data.htm https://www.bls.gov/mxp/data.htm
I D Current US Inflation. Unconventional monetary policy of zero interest rates and large-scale purchases of long-term securities for the balance sheet of the central bank is proposed to prevent deflation. The data of CPI inflation of all goods and CPI inflation excluding food and energy for the past six decades does not show even one negative change, as shown in Table CPIEX.
Table CPIEX, Annual Percentage Changes of the CPI All Items Excluding Food and Energy
| Year | Annual ∆% |
| 1958 | 2.4 |
| 1959 | 2.0 |
| 1960 | 1.3 |
| 1961 | 1.3 |
| 1962 | 1.3 |
| 1963 | 1.3 |
| 1964 | 1.6 |
| 1965 | 1.2 |
| 1966 | 2.4 |
| 1967 | 3.6 |
| 1968 | 4.6 |
| 1969 | 5.8 |
| 1970 | 6.3 |
| 1971 | 4.7 |
| 1972 | 3.0 |
| 1973 | 3.6 |
| 1974 | 8.3 |
| 1975 | 9.1 |
| 1976 | 6.5 |
| 1977 | 6.3 |
| 1978 | 7.4 |
| 1979 | 9.8 |
| 1980 | 12.4 |
| 1981 | 10.4 |
| 1982 | 7.4 |
| 1983 | 4.0 |
| 1984 | 5.0 |
| 1985 | 4.3 |
| 1986 | 4.0 |
| 1987 | 4.1 |
| 1988 | 4.4 |
| 1989 | 4.5 |
| 1990 | 5.0 |
| 1991 | 4.9 |
| 1992 | 3.7 |
| 1993 | 3.3 |
| 1994 | 2.8 |
| 1995 | 3.0 |
| 1996 | 2.7 |
| 1997 | 2.4 |
| 1998 | 2.3 |
| 1999 | 2.1 |
| 2000 | 2.4 |
| 2001 | 2.6 |
| 2002 | 2.4 |
| 2003 | 1.4 |
| 2004 | 1.8 |
| 2005 | 2.2 |
| 2006 | 2.5 |
| 2007 | 2.3 |
| 2008 | 2.3 |
| 2009 | 1.7 |
| 2010 | 1.0 |
| 2011 | 1.7 |
| 2012 | 2.1 |
| 2013 | 1.8 |
| 2014 | 1.7 |
| 2015 | 1.8 |
| 2016 | 2.2 |
| 2017 | 1.8 |
| 2018 | 2.1 |
| 2019 | 2.2 |
| 2020 | 1.7 |
| 2021 | 3.6 |
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data
The history of producer price inflation in the past five decades does not provide evidence of deflation. The finished core PPI does not register even one single year of decline, as shown in Table PPIEX.
Table PPIEX, Annual Percentage Changes of the PPI Finished Goods Excluding Food and Energy
| Year | Annual |
| 1974 | 11.4 |
| 1975 | 11.4 |
| 1976 | 5.7 |
| 1977 | 6.0 |
| 1978 | 7.5 |
| 1979 | 8.9 |
| 1980 | 11.2 |
| 1981 | 8.6 |
| 1982 | 5.7 |
| 1983 | 3.0 |
| 1984 | 2.4 |
| 1985 | 2.5 |
| 1986 | 2.3 |
| 1987 | 2.4 |
| 1988 | 3.3 |
| 1989 | 4.4 |
| 1990 | 3.7 |
| 1991 | 3.6 |
| 1992 | 2.4 |
| 1993 | 1.2 |
| 1994 | 1.0 |
| 1995 | 2.1 |
| 1996 | 1.4 |
| 1997 | 0.3 |
| 1998 | 0.9 |
| 1999 | 1.7 |
| 2000 | 1.3 |
| 2001 | 1.4 |
| 2002 | 0.1 |
| 2003 | 0.2 |
| 2004 | 1.5 |
| 2005 | 2.4 |
| 2006 | 1.5 |
| 2007 | 1.9 |
| 2008 | 3.4 |
| 2009 | 2.6 |
| 2010 | 1.2 |
| 2011 | 2.4 |
| 2012 | 2.6 |
| 2013 | 1.5 |
| 2014 | 1.9 |
| 2015 | 2.0 |
| 2016 | 1.6 |
| 2017 | 1.8 |
| 2018 | 2.3 |
| 2019 | 2.2 |
| 2020 | 1.2 |
| 2021 | 3.9 |
Source: US Bureau of Labor Statistics
Chart I-1 provides US nominal GDP from 1929 to 2021. The chart disguises the decline of nominal GDP during the 1930s from $104.6 billion in 1929 to $57.2 billion in 1933 or by 45.3 percent (data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). The level of nominal GDP reached $102.9 billion in 1940 and exceeded the $104.6 billion of 1929 only with $129.3 billion in 1941. The only major visible bump in the chart occurred in the recession of IVQ2007 to IIQ2009 with revised cumulative decline of real GDP of 3.8 percent. US nominal GDP fell from $14,769.9 billion in 2008 to $14,478.1 billion in 2009 or by 2.0 percent. US nominal GDP rose to $15,049.0 billion in 2010 or by 3.9 percent and to $15,599.7 billion in 2011 for an additional 3.7 percent for cumulative increase of 7.7 percent relative to 2009 and to $16,254.0 billion in 2012 for an additional 4.2 percent and cumulative increase of 12.3 percent relative to 2009. US nominal GDP increased from $14,474.2 in 2007 to $21,372.6 billion in 2019 or by 47.7 percent at the average annual rate of 3.3 percent per year (https://apps.bea.gov/iTable/index_nipa.cfm). US Nominal GDP fell from $21,372.6 billion in 2019 to $20,893.7 billion in 2020 or 2.2 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). US GDP increased from $20,893.7 billion in 2020 to $$22,996.1 billion in 2021 or 10.1 percent. Tendency for deflation would be reflected in persistent bumps. In contrast, during the Great Depression in the four years of 1929 to 1933, GDP in constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7). The comparison of the global recession after 2007 with the Great Depression is entirely misleading (https://cmpassocregulationblog.blogspot.com/2022/04/us-gdp-growing-at-saar-of-69-percent-in.html and earlier https://cmpassocregulationblog.blogspot.com/2022/02/us-gdp-growing-at-saar-of-70-percent-in.html).
Chart I-1, US, Nominal GDP 1929-2021
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-2 provides US real GDP from 1929 to 2021. The chart also disguises the Depression of the 1930s. In the four years of 1929 to 1933, GDP in constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7; data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). Persistent deflation threatening real economic activity would also be reflected in the series of long-term growth of real GDP. There is no such behavior in Chart I-2 except for periodic recessions in the US economy that have occurred throughout history. US real GDP decreased from $19,032.7 billion in 2019 to $18,384.7 billion in 2020 or 3.4 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). US GDP increased from $18,384.7 billion in 2020 to $19,427.3 billion in 2021 or 5.7 percent.
Chart I-2, US, Real GDP 1929-2021
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Deflation would also be in evidence in long-term series of prices in the form of bumps. The GDP implicit deflator series in Chart I-3 from 1929 to 2021 shows sharp dynamic behavior over time. There is decline of the implicit price deflator of GDP by 25.8 percent from 1929 to 1933 (data from the US Bureau of Economic Analysis at https://apps.bea.gov/iTable/index_nipa.cfm). In contrast, the implicit price deflator of GDP of the US increased from 92.642 (2012 =100) in 2007 to 95.024 in 2009 or by 2.6 percent and increased to 112.294 in 2019 or by 18.2 percent relative to 2009 and 21.2 percent relative to 2007. The implicit price deflator increased from 112.294 in 2019 to 113.648 in 2020 or 1.2 percent, increasing to 118.370 in 2021 or 4.2 percent, in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). The implicit price deflator of US GDP increased in every quarter from IVQ2007 to IVQ2012 with exception of decline from 95.065 in IVQ2008 to 94.852 in IIQ2009 or by 0.2 percent (https://apps.bea.gov/iTable/index_nipa.cfm). The implicit price deflator of GDP fell from 113.346 in IQ2020 to 112.859 in IIQ2020 or 0.4 percent and increased to 113.888 in IIIQ2020 or 0.9, increasing to 114.439 in IVQ2020 or 0.5 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). The implicit price deflator of GDP increased from 114.439 in IVQ2020 to 115.652 in IQ2021 or 1.1 percent, increasing to 117.413 in IIQ2021 or 1.5 percent. The implicit price deflator of GDP increased from 117.413 in IIQ2012 to 119.115 in IIIQ2021 or 1.4 percent. The implicit price deflator of GDP increased from 119.115 in IIQ2021 to 121.188 in IVQ2021 or 1.7 percent. Wars are characterized by rapidly rising prices followed by declines when peace is restored. The US economy is not plagued by deflation but by long-run inflation.
Chart I-3, US, GDP Implicit Price Deflator 1929-2021
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-4 provides percent change from preceding quarter in prices of GDP at seasonally adjusted annual rates (SAAR) from 1980 to 2021. There is one case of negative change by 0.6 percent in IIQ2009 that was adjustment from 3.1 percent in IIIQ2008 following 1.7 percent in IQ2008 and 1.5 percent IIQ2008 caused by carry trades from policy interest rates being moved to zero into commodity futures. These positions were reversed because of the fear of toxic assets in banks in the proposal of TARP in late 2008 (Cochrane and Zingales 2009). Prices of GDP increased at 0.3 percent in IVQ2014. GDP prices changed at 0.0 percent in IQ2015, increasing at 2.3 percent in IIQ015 and at 1.0 percent in IIIQ2015. Prices of GDP changed at 0.0 percent in IVQ2015 and decreased at 0.2 percent in IQ2016. Prices of GDP changed at 2.7 percent in IIQ2016 and increased at 1.2 percent in IIIQ2016. Prices of GDP increased at 2.2 percent in IVQ2016 and increased at 2.0 percent in IQ2017. Prices of GDP increased at 1.3 percent in IIQ2017 and increased at 2.2 percent in IIIQ2017. Prices of GDP increased at 2.7 percent in IVQ2017 and increased at 2.4 percent in IQ2018. Prices of GDP increased at 3.1 percent in IIQ2018 and increased at 1.8 percent in IIIQ2018. Prices of GDP increased at 2.0 percent in IVQ2018 and increased at 1.1 percent in IQ2019. Prices of GDP increased at 2.3 percent in IIQ2019 and increased at 1.4 percent in IIIQ2019. Prices of GDP increased at 1.5 percent in IVQ2019 and increased at 1.6 percent in IQ2020. Prices of GDP decreased at 1.5 percent in IIQ2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Prices of GDP increased at 3.6 percent in IIIQ2020. Prices of GDP increased at 2.2 percent in IVQ2020. Prices of GDP increased at 4.3 percent in IQ2021. Prices of GDP increased at 6.1 percent in IIQ2021. Prices of GDP increased at 6.0 percent in IIIQ2021. Prices of GDP increased at 7.1 percent in IVQ2021. There has not been actual deflation or risk of deflation threatening depression in the US that would justify unconventional monetary policy.
Chart I-4, Percent Change from Preceding Period in Prices for GDP Seasonally Adjusted at Annual Rates 1980-2021
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-4A provides quarterly percentage changes of prices of GDP from IQ2018 to IVQ2021. Prices of GDP decreased at 1.5 percent in IIQ2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Prices of GDP increased at 3.6 percent in IIIQ2020 and increased at 2.2 percent in IVQ2020. Prices of GDP increased at 4.3 percent in IQ2021 and increased at 6.1 percent in IIQ2021. Prices of GDP increased at 6.0 percent in IIIQ2021. Prices of GDP increased at 7.1 percent in IVQ2021.
Chart I-4A, Percent Change from Preceding Period in Prices for GDP Seasonally Adjusted at Annual Rates 2018-2021
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-5 provides percentage changes of prices of GDP in the US from 1930 to 2021. There are decreases only in the 1930s and after 0.0 percent in 1949 following major increases during World War II.
Chart I-5, Percent Change from Preceding Year in Prices for Gross Domestic Product 1930-2021
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-6 provides the producer price index from 1947 to 2022. The producer price index fell 2.8 percent in 1949 following the adjustment to World War II and fell 0.6 percent in 1952 and 1.0 percent in 1953 around the Korean War. There are two other mild declines of 0.3 percent in 1959 and 0.3 percent in 1963. There are only few subsequent and isolated declines of the producer price index of 1.4 percent in 1986, 0.8 percent in 1998, 1.3 percent in 2002 and 2.6 percent in 2009. The decline of 2009 was caused by unwinding of carry trades in 2008 that had lifted oil prices to $140/barrel during deep global recession because of the panic of probable toxic assets in banks that would be removed with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Producer prices fell 3.2 percent in 2015 and declined 1.0 percent in 2016 during collapse of commodity prices form high prices induced by zero interest rates. Producer prices increased 3.2 percent in 2017 and increased 3.1 percent in 2018. Producer prices increased 0.8 percent in 2019. Producer prices fell 1.4 percent in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Producer prices increased 8.9 percent in 2021. There is no evidence in this history of 66 years of the US producer price index suggesting that there is frequent and persistent deflation shock requiring aggressive unconventional monetary policy. The design of such anti-deflation policy could provoke price and financial instability because of lags in effect of monetary policy, model errors, inaccurate forecasts and misleading analysis of current economic conditions.
Chart I-6, US, Producer Price Index, Finished Goods, NSA, 1947-2022
Source: US Bureau of Labor Statistics
Chart I-7 provides 12-month percentage changes of the producer price index from 1948 to 2022. The distinguishing event in Chart I-7 is the Great Inflation of the 1970s. The shape of the two-hump Bactrian camel of the 1970’s resembles the double hump from 2007 to 2022.
Chart I-7, US, Producer Price Index, Finished Goods, 12-Month Percentage Change, NSA, 1948-2022
Source: US Bureau of Labor
Annual percentage changes of the producer price index from 1948 to 2021 are shown in Table I-1A. The producer price index fell 2.8 percent in 1949 following the adjustment to World War II and fell 0.6 percent in 1952 and 1.0 percent in 1953 around the Korean War. There are two other mild declines of 0.3 percent in 1959 and 0.3 percent in 1963. There are only few subsequent and isolated declines of the producer price index of 1.4 percent in 1986, 0.8 percent in 1998, 1.3 percent in 2002 and 2.6 percent in 2009. The decline of 2009 was caused by unwinding of carry trades in 2008 that had lifted oil prices to $140/barrel during deep global recession because of the panic of probable toxic assets in banks that would be removed with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Producer prices fell 3.2 percent in 2015 and declined 1.0 percent in 2016 during collapse of commodity prices form high prices induced by zero interest rates. Producer prices increased 3.2 percent in 2017 and increased 3.1 percent in 2018. Producer prices increased 0.8 percent in 2019. Producer prices fell 1.4 percent in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). Producer prices jumped 8.9 percent in 2021. There is no evidence in this history of 66 years of the US producer price index suggesting that there is frequent and persistent deflation shock requiring aggressive unconventional monetary policy. The design of such anti-deflation policy could provoke price and financial instability because of lags in effect of monetary policy, model errors, inaccurate forecasts and misleading analysis of current economic conditions.
Table I-1A, US, Annual PPI Inflation ∆% 1948-2020
| Year | Annual |
| 1948 | 8.0 |
| 1949 | -2.8 |
| 1950 | 1.8 |
| 1951 | 9.2 |
| 1952 | -0.6 |
| 1953 | -1.0 |
| 1954 | 0.3 |
| 1955 | 0.3 |
| 1956 | 2.6 |
| 1957 | 3.8 |
| 1958 | 2.2 |
| 1959 | -0.3 |
| 1960 | 0.9 |
| 1961 | 0.0 |
| 1962 | 0.3 |
| 1963 | -0.3 |
| 1964 | 0.3 |
| 1965 | 1.8 |
| 1966 | 3.2 |
| 1967 | 1.1 |
| 1968 | 2.8 |
| 1969 | 3.8 |
| 1970 | 3.4 |
| 1971 | 3.1 |
| 1972 | 3.2 |
| 1973 | 9.1 |
| 1974 | 15.4 |
| 1975 | 10.6 |
| 1976 | 4.5 |
| 1977 | 6.4 |
| 1978 | 7.9 |
| 1979 | 11.2 |
| 1980 | 13.4 |
| 1981 | 9.2 |
| 1982 | 4.1 |
| 1983 | 1.6 |
| 1984 | 2.1 |
| 1985 | 1.0 |
| 1986 | -1.4 |
| 1987 | 2.1 |
| 1988 | 2.5 |
| 1989 | 5.2 |
| 1990 | 4.9 |
| 1991 | 2.1 |
| 1992 | 1.2 |
| 1993 | 1.2 |
| 1994 | 0.6 |
| 1995 | 1.9 |
| 1996 | 2.7 |
| 1997 | 0.4 |
| 1998 | -0.8 |
| 1999 | 1.8 |
| 2000 | 3.8 |
| 2001 | 2.0 |
| 2002 | -1.3 |
| 2003 | 3.2 |
| 2004 | 3.6 |
| 2005 | 4.8 |
| 2006 | 3.0 |
| 2007 | 3.9 |
| 2008 | 6.3 |
| 2009 | -2.6 |
| 2010 | 4.2 |
| 2011 | 6.1 |
| 2012 | 1.9 |
| 2013 | 1.2 |
| 2014 | 1.9 |
| 2015 | -3.2 |
| 2016 | -1.0 |
| 2017 | 3.2 |
| 2018 | 3.1 |
| 2019 | 0.8 |
| 2020 | -1.4 |
| 2021 | 8.9 |
Note annual data not available for 2021
Source: US Bureau of Labor Statistics
The producer price index excluding food and energy from 1973 to 2022, the first historical date of availability in the dataset of the Bureau of Labor Statistics (BLS), shows similarly dynamic behavior as the overall index, as shown in Chart I-8. There is no evidence of persistent deflation in the US PPI.
Chart I-8, US Producer Price Index, Finished Goods Excluding Food and Energy, NSA, 1973-2022
Source: US Bureau of Labor Statistics
Chart I-9 provides 12-month percentage rates of change of the finished goods index excluding food and energy. The dominating characteristic is the Great Inflation of the 1970s. The double hump illustrates how inflation may appear to be subdued and then returns with strength.
Chart I-9, US Producer Price Index, Finished Goods Excluding Food and Energy, 12-Month Percentage Change, NSA, 1974-2022
Source: US Bureau of Labor Statistics
The producer price index of energy goods from 1974 to 2022 is in Chart I-10. The first jump occurred during the Great Inflation of the 1970s analyzed in various comments of this blog (http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html) and in Appendix I. There is relative stability of producer prices after 1986 with another jump and decline in the late 1990s into the early 2000s. The episode of commodity price increases during a global recession in 2008 could only have occurred with interest rates dropping toward zero, which stimulated the carry trade from zero interest rates to leveraged positions in commodity futures. Commodity futures exposures were dropped in the flight to government securities after Sep 2008. Commodity future exposures were created again when risk aversion diminished around Mar 2010 after the finding that US bank balance sheets did not have the toxic assets that were mentioned in proposing TARP in Congress (see Cochrane and Zingales 2009). Fluctuations in commodity prices and other risk financial assets originate in carry trade when risk aversion ameliorates. There are also fluctuations originating in shifts in preference for asset classes such as between commodities and equities.
Chart I-10, US, Producer Price Index, Finished Energy Goods, NSA, 1974-2022
Source: US Bureau of Labor Statistics
Chart I-11 shows 12-month percentage changes of the producer price index of finished energy goods from 1975 to 2022. This index is only available after 1974 and captures only one of the humps of energy prices during the Great Inflation. Fluctuations in energy prices have occurred throughout history in the US but without provoking deflation. Two cases are the decline of oil prices in 2001 to 2002 that has been analyzed by Barsky and Kilian (2004) and the collapse of oil prices from over $140/barrel with shock of risk aversion to the carry trade in Sep 2008. There are declines in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021) followed by sharp increase into 2021-22.
Chart I-11, US, Producer Price Index, Finished Energy Goods, 12-Month Percentage Change, NSA, 1975-2022
Source: US Bureau of Labor Statistics
Chart I-12 provides the consumer price index NSA from 1913 to 2022. The dominating characteristic is the increase in slope during the Great Inflation from the middle of the 1960s through the 1970s. There is long-term inflation in the US and no evidence of deflation risks.
Chart I-12, US, Consumer Price Index, NSA, 1913-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-13 provides 12-month percentage changes of the consumer price index from 1914 to 2022. The only episode of deflation after 1950 is in 2009, which is explained by the reversal of speculative commodity futures carry trades that were induced by interest rates driven to zero in a shock of monetary policy in 2008. The only persistent case of deflation is from 1930 to 1933, which has little if any relevance to the contemporary United States economy. There are actually three waves of inflation in the second half of the 1960s, in the mid-1970s and again in the late 1970s. Inflation rates then stabilized in a range with only two episodes above 5 percent.
Chart I-13, US, Consumer Price Index, All Items, 12- Month Percentage Change 1914-2022
Source: US Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
Table I-2 provides annual percentage changes of United States consumer price inflation from 1914 to 2021. There have been only cases of annual declines of the CPI after wars:
- World War I minus 10.5 percent in 1921 and minus 6.1 percent in 1922 following cumulative increases of 83.5 percent in four years from 1917 to 1920 at the average of 16.4 percent per year
- World War II: minus 1.2 percent in 1949 following cumulative 33.9 percent in three years from 1946 to 1948 at average 10.2 percent per year
- Minus 0.4 percent in 1955 two years after the end of the Korean War
- Minus 0.4 percent in 2009.
- The decline of 0.4 percent in 2009 followed increase of 3.8 percent in 2008 and is explained by the reversal of speculative carry trades into commodity futures that were created in 2008 as monetary policy rates were driven to zero. The reversal occurred after misleading statement on toxic assets in banks in the proposal for TARP (Cochrane and Zingales 2009).
There were declines of 1.7 percent in both 1927 and 1928 during the episode of revival of rules of the gold standard. The only persistent deflationary period since 1914 was during the Great Depression in the years from 1930 to 1933 and again in 1938-1939. Consumer prices increased only 0.1 percent in 2015 because of the collapse of commodity prices from artificially high levels induced by zero interest rates. Consumer prices increased 1.3 percent in 2016, increasing at 2.1 percent in 2017. Consumer prices increased 2.4 percent in 2018, increasing at 1.8 percent in 2019. Consumer prices increased 1.2 percent in 2020. Consumer prices increased 4.7 percent in 2021 during fiscal, monetary, and external imbalances. Fear of deflation based on that experience does not justify unconventional monetary policy of zero interest rates that has failed to stop deflation in Japan. Financial repression causes far more adverse effects on allocation of resources by distorting the calculus of risk/returns than alleged employment-creating effects or there would not be current recovery without jobs and hiring after zero interest rates since Dec 2008 and intended now forever in a self-imposed forecast growth and employment mandate of monetary policy. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness. Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). If there were an infallible science of central banking, models and forecasts would provide accurate information to policymakers on the future course of the economy in advance. Such forewarning is essential to central bank science because of the long lag between the actual impulse of monetary policy and the actual full effects on income and prices many months and even years ahead (Romer and Romer 2004, Friedman 1961, 1953, Culbertson 1960, 1961, Batini and Nelson 2002). Jon Hilsenrath, writing on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzed 1865 pages of transcripts of eight formal and six emergency policy meetings at the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). Jon Hilsenrath demonstrates that Fed policymakers frequently did not understand the current state of the US economy in 2008 and much less the direction of income and prices. The conclusion of Friedman (1953) that monetary impulses increase financial and economic instability because of lags in anticipating needs of policy, taking policy decisions and effects of decisions. This a fortiori true when untested unconventional monetary policy in gargantuan doses shocks the economy and financial markets.
Table I-2, US, Annual CPI Inflation ∆% 1914-2021
| Year | Annual ∆% |
| 1914 | 1.0 |
| 1915 | 1.0 |
| 1916 | 7.9 |
| 1917 | 17.4 |
| 1918 | 18.0 |
| 1919 | 14.6 |
| 1920 | 15.6 |
| 1921 | -10.5 |
| 1922 | -6.1 |
| 1923 | 1.8 |
| 1924 | 0.0 |
| 1925 | 2.3 |
| 1926 | 1.1 |
| 1927 | -1.7 |
| 1928 | -1.7 |
| 1929 | 0.0 |
| 1930 | -2.3 |
| 1931 | -9.0 |
| 1932 | -9.9 |
| 1933 | -5.1 |
| 1934 | 3.1 |
| 1935 | 2.2 |
| 1936 | 1.5 |
| 1937 | 3.6 |
| 1938 | -2.1 |
| 1939 | -1.4 |
| 1940 | 0.7 |
| 1941 | 5.0 |
| 1942 | 10.9 |
| 1943 | 6.1 |
| 1944 | 1.7 |
| 1945 | 2.3 |
| 1946 | 8.3 |
| 1947 | 14.4 |
| 1948 | 8.1 |
| 1949 | -1.2 |
| 1950 | 1.3 |
| 1951 | 7.9 |
| 1952 | 1.9 |
| 1953 | 0.8 |
| 1954 | 0.7 |
| 1955 | -0.4 |
| 1956 | 1.5 |
| 1957 | 3.3 |
| 1958 | 2.8 |
| 1959 | 0.7 |
| 1960 | 1.7 |
| 1961 | 1.0 |
| 1962 | 1.0 |
| 1963 | 1.3 |
| 1964 | 1.3 |
| 1965 | 1.6 |
| 1966 | 2.9 |
| 1967 | 3.1 |
| 1968 | 4.2 |
| 1969 | 5.5 |
| 1970 | 5.7 |
| 1971 | 4.4 |
| 1972 | 3.2 |
| 1973 | 6.2 |
| 1974 | 11.0 |
| 1975 | 9.1 |
| 1976 | 5.8 |
| 1977 | 6.5 |
| 1978 | 7.6 |
| 1979 | 11.3 |
| 1980 | 13.5 |
| 1981 | 10.3 |
| 1982 | 6.2 |
| 1983 | 3.2 |
| 1984 | 4.3 |
| 1985 | 3.6 |
| 1986 | 1.9 |
| 1987 | 3.6 |
| 1988 | 4.1 |
| 1989 | 4.8 |
| 1990 | 5.4 |
| 1991 | 4.2 |
| 1992 | 3.0 |
| 1993 | 3.0 |
| 1994 | 2.6 |
| 1995 | 2.8 |
| 1996 | 3.0 |
| 1997 | 2.3 |
| 1998 | 1.6 |
| 1999 | 2.2 |
| 2000 | 3.4 |
| 2001 | 2.8 |
| 2002 | 1.6 |
| 2003 | 2.3 |
| 2004 | 2.7 |
| 2005 | 3.4 |
| 2006 | 3.2 |
| 2007 | 2.8 |
| 2008 | 3.8 |
| 2009 | -0.4 |
| 2010 | 1.6 |
| 2011 | 3.2 |
| 2012 | 2.1 |
| 2013 | 1.5 |
| 2014 | 1.6 |
| 2015 | 0.1 |
| 2016 | 1.3 |
| 2017 | 2.1 |
| 2018 | 2.4 |
| 2019 | 1.8 |
| 2020 | 1.2 |
| 2021 | 4.7 |
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-14 provides the consumer price index excluding food and energy from 1957 to 2022. There is long-term inflation in the US without episodes of persistent deflation.
Chart I-14, US, Consumer Price Index Excluding Food and Energy, NSA, 1957-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-15 provides 12-month percentage changes of the consumer price index excluding food and energy from 1958 to 2022. There are three waves of inflation in the 1970s during the Great Inflation. There is no episode of deflation.
Chart I-15, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 1958-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
The consumer price index of housing is in Chart I-16. There was also acceleration during the Great Inflation of the 1970s. The index flattens after the global recession in IVQ2007 to IIQ2009. Housing prices collapsed under the weight of construction of several times more housing than needed. Surplus housing originated in subsidies and artificially low interest rates in the shock of unconventional monetary policy in 2003 to 2004 in fear of deflation.
Chart I-16, US, Consumer Price Index Housing, NSA, 1967-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-17 provides 12-month percentage changes of the housing CPI. The Great Inflation also had extremely high rates of housing inflation. Housing is considered as potential hedge of inflation.
Chart I-17, US, Consumer Price Index, Housing, 12- Month Percentage Change, NSA, 1968-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
ID Current US Inflation. Consumer price inflation has fluctuated in recent months. Table I-3 provides 12-month consumer price inflation in Mar 2022 and annual equivalent percentage changes for the months from Jan 2022 to Mar 2022 of the CPI and the core CPI. The final column provides inflation from Feb 2022 to Mar 2022. CPI inflation increased 8.5 percent in the 12 months ending in Mar 2022. The annual equivalent rate from Jan 2022 to Mar 2022 was 10.9 percent in the new episode of reversal and renewed positions of carry trades from zero interest rates to commodities exposures with increasing fiscal imbalances; and the monthly inflation rate of 1.2 percent annualizes at 15.4 percent with oscillating carry trades at the margin. These inflation rates fluctuate in accordance with inducement of risk appetite or frustration by risk aversion of carry trades from zero interest rates to commodity futures. At the margin, the decline in commodity prices in sharp recent risk aversion in commodities markets caused lower inflation worldwide (with return in some countries in Dec 2012 and Jan-Feb 2013) that followed a jump in Aug-Sep 2012 because of the relaxed risk aversion resulting from the bond-buying program of the European Central Bank or Outright Monetary Transactions (OMT) (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html). Carry trades moved away from commodities into stocks with resulting weaker commodity prices and stronger equity valuations. There is reversal of exposures in commodities but with preferences of equities by investors. Geopolitical events in Eastern Europe and the Middle East together with economic conditions worldwide are inducing risk concerns in commodities at the margin. With zero or very low interest rates, commodity prices would increase again in an environment of risk appetite, as shown in past oscillating inflation. Excluding food and energy, core CPI inflation was 6.5 percent in the 12 months ending in Mar 2022, 5.7 percent in annual equivalent from Jan 2022 to Mar 2022 and 0.3 percent in Mar 2022, which annualizes at 3.7 percent. There is no deflation in the US economy that could justify further unconventional monetary policy, which is now open-ended or forever with very low interest rates and cessation of bond-buying by the central bank but with reinvestment of interest and principal, or QE→∞ even if the economy grows back to potential. The FOMC is engaged in increases in the Fed balance sheet. Financial repression of very low interest rates is constituted protracted distortion of resource allocation by clouding risk/return decisions, preventing the economy from expanding along its optimal growth path. On Aug 27, 2020, the Federal Open Market Committee changed its Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances. In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” The new policy can affect relative exchange rates depending on relative inflation rates and country risk issues. On Mar 6, 2022, the FOMC increased interest rates with the following guidance (https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm): “With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):
“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”
Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and re the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+re). Thus, g = [(r/re) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dre>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:
W = Y/r (1)
Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.
Table I-3, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%
| % RI | ∆% 12 Months Mar 2022/Mar | ∆% Annual Equivalent Jan 2022 to Mar 2022 SA | ∆% Mar 2022/Feb 2022 SA | |
| CPI All Items | 100.000 | 8.5 | 10.9 | 1.2 |
| CPI ex Food and Energy | 79.048 | 6.5 | 5.7 | 0.3 |
% RI: Percent Relative Importance
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/
Table I-4 provides relative important components of the consumer price index. The relative important weights for Mar 2022 are in Table I-3.
Table I-4, US, Relative Importance, 2009-2010 Weights, of Components in the Consumer Price Index, US City Average, Dec 2012
| All Items | 100.000 |
| Food and Beverages | 15.261 |
| Food | 14.312 |
| Food at home | 8.898 |
| Food away from home | 5.713 |
| Housing | 41.021 |
| Shelter | 31.681 |
| Rent of primary residence | 6.545 |
| Owners’ equivalent rent | 22.622 |
| Apparel | 3.564 |
| Transportation | 16.846 |
| Private Transportation | 15.657 |
| New vehicles | 3.189 |
| Used cars and trucks | 1.844 |
| Motor fuel | 5.462 |
| Gasoline | 5.274 |
| Medical Care | 7.163 |
| Medical care commodities | 1.714 |
| Medical care services | 5.448 |
| Recreation | 5.990 |
| Education and Communication | 6.779 |
| Other Goods and Services | 3.376 |
Refers to all urban consumers, covering approximately 87 percent of the US population (see http://www.bls.gov/cpi/cpiovrvw.htm#item1). Source: US Bureau of Labor Statistics http://www.bls.gov/cpi/cpiri2011.pdf http://www.bls.gov/cpi/cpiriar.htm http://www.bls.gov/cpi/cpiri2012.pdf
Chart I-18 provides the US consumer price index for housing from 2001 to 2022. Housing prices rose sharply during the decade until the bump of the global recession and increased again in 2011-2012 with some stabilization in 2013. There is renewed increase in 2014 followed by stabilization and renewed increase in 2015-2022. The CPI excluding housing would likely show much higher inflation. The commodity carry trades resulting from unconventional monetary policy have compressed income remaining after paying for indispensable shelter.
Chart I-18, US, Consumer Price Index, Housing, NSA, 2001-2021
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-19 provides 12-month percentage changes of the housing CPI. Percentage changes collapsed during the global recession but have been rising into positive territory in 2011 and 2012-2013 but with the rate declining and then increasing into 2014. There is decrease into 2015 followed by stability and marginal increase in 2016-2019 followed by initial decline in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the through in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021) with sharp recovery.
Chart I-19, US, Consumer Price Index, Housing, 12-Month Percentage Change, NSA, 2001-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
There have been waves of consumer price inflation in the US in 2011 and into 2022 (https://cmpassocregulationblog.blogspot.com/2022/03/accelerating-inflation-throughout-world.html and earlier https://cmpassocregulationblog.blogspot.com/2022/02/us-gdp-growing-at-saar-of-70-percent-in.html) that are illustrated in Table I-5. The first wave occurred in Jan-Apr 2011 and was caused by the carry trade of commodity prices induced by unconventional monetary policy of zero interest rates. Cheap money at zero opportunity cost in environment of risk appetite was channeled into financial risk assets, causing increases in commodity prices. The annual equivalent rate of increase of the all-items CPI in Jan-Apr 2011 was 4.9 percent and the CPI excluding food and energy increased at annual equivalent rate of 1.8 percent. The second wave occurred during the collapse of the carry trade from zero interest rates to exposures in commodity futures because of risk aversion in financial markets created by the sovereign debt crisis in Europe. The annual equivalent rate of increase of the all-items CPI dropped to 1.8 percent in May-Jun 2011 while the annual equivalent rate of the CPI excluding food and energy increased at 2.4 percent. In the third wave in Jul-Sep 2011, annual equivalent CPI inflation rose to 3.2 percent while the core CPI increased at 2.4 percent. The fourth wave occurred in the form of increase of the CPI all-items annual equivalent rate to 1.8 percent in Oct-Nov 2011 with the annual equivalent rate of the CPI excluding food and energy remaining at 2.4 percent. The fifth wave occurred in Dec 2011 to Jan 2012 with annual equivalent headline inflation of 1.8 percent and core inflation of 2.4 percent. In the sixth wave, headline CPI inflation increased at annual equivalent 2.4 percent in Feb-Apr 2012 and 2.0 percent for the core CPI. The seventh wave in May-Jul occurred with annual equivalent inflation of minus 1.2 percent for the headline CPI in May-Jul 2012 and 2.0 percent for the core CPI. The eighth wave is with annual equivalent inflation of 6.8 percent in Aug-Sep 2012 but 5.7 percent including Oct. In the ninth wave, annual equivalent inflation in Nov 2012 was minus 2.4 percent under the new shock of risk aversion and 0.0 percent in Dec 2012 with annual equivalent of 0.0 percent in Nov 2012-Jan 2013 and 2.0 percent for the core CPI. In the tenth wave, annual equivalent of the headline CPI was 6.2 percent in Feb 2013 and 1.2 percent for the core CPI. In the eleventh wave, annual equivalent was minus 3.0 percent in Mar-Apr 2013 and 0.6 percent for the core index. In the twelfth wave, annual equivalent inflation was 1.4 percent in May-Sep 2013 and 2.2 percent for the core CPI. In the thirteenth wave, annual equivalent CPI inflation in Oct-Nov 2013 was 1.8 percent and 1.8 percent for the core CPI. Inflation returned in the fourteenth wave at 2.4 percent for the headline CPI index and 1.8 percent for the core CPI in annual equivalent for Dec 2013 to Mar 2014. In the fifteenth wave, inflation moved to annual equivalent 1.8 percent for the headline index in Apr-Jul 2014 and 2.1 percent for the core index. In the sixteenth wave, annual equivalent inflation was 0.0 percent in Aug 2014 and 1.2 percent for the core index. In the seventeenth wave, annual equivalent inflation was 0.0 percent for the headline CPI and 2.4 percent for the core in Sep-Oct 2014. In the eighteenth wave, annual equivalent inflation was minus 4.3 percent for the headline index in Nov 2014-Jan 2015 and 1.2 percent for the core. In the nineteenth wave, annual equivalent inflation was 3.2 percent for the headline index and 2.2 percent for the core index in Feb-Jun 2015. In the twentieth wave, annual equivalent inflation was at 2.4 percent in Jul 2015 for the headline and core indexes. In the twenty-first wave, headline consumer prices decreased at 1.2 percent in annual equivalent in Aug-Sep 2015 while core prices increased at annual equivalent 1.8 percent. In the twenty-second wave, consumer prices increased at annual equivalent 1.2 percent for the central index and 2.4 percent for the core in Oct-Nov 2015. In the twenty-third wave, annual equivalent inflation was minus 0.6 percent for the headline CPI in Dec 2015 to Jan 2016 and 1.8 percent for the core. In the twenty-fourth wave, annual equivalent was minus 1.2 percent and 2.4 percent for the core in Feb 2016. In the twenty-fifth wave, annual equivalent inflation was at 4.3 percent for the central index in Mar-Apr 2016 and at 3.0 percent for the core index. In the twenty-sixth wave, annual equivalent inflation was 3.0 percent for the central CPI in May-Jun 2016 and 2.4 percent for the core CPI. In the twenty-seventh wave, annual equivalent inflation was minus 1.2 percent for the central CPI and 1.2 percent for the core in Jul 2016. In the twenty-eighth wave, annual equivalent inflation was 2.4 percent for the headline CPI in Aug 2016 and 2.4 percent for the core. In the twenty-ninth wave, CPI prices increased at annual equivalent 3.0 percent in Sep-Oct 2016 while the core CPI increased at 1.8 percent. In the thirtieth wave, annual equivalent CPI prices increased at 2.4 percent in Nov-Dec 2016 while the core CPI increased at 1.8 percent. In the thirty-first wave, CPI prices increased at annual equivalent 4.9 percent in Jan 2017 while the core index increased at 2.4 percent. In the thirty-second wave, CPI prices changed at annual equivalent 2.4 percent in Feb 2017 while the core increased at 2.4 percent. In the thirty-third wave, CPI prices changed at annual equivalent 0.0 percent in Mar 2017 while the core index changed at 0.0 percent. In the thirty-fourth wave, CPI prices increased at 1.2 percent annual equivalent in Apr 2017 while the core index increased at 1.2 percent. In the thirty-fifth wave, CPI prices changed at 0.0 annual equivalent in May-Jun 2017 while core prices increased at 1.2 percent. In the thirty-sixth wave, CPI prices changed at annual equivalent 0.0 percent in Jul 2017 while core prices increased at 1.2 percent. In the thirty-seventh wave, CPI prices increased at annual equivalent 5.5 percent in Aug-Sep 2017 while core prices increased at 1.8 percent. In the thirty-eighth wave, CPI prices increased at 2.4 percent annual equivalent in Oct-Nov 2017 while core prices increased at 2.4 percent. In the thirty-ninth wave, CPI prices increased at 3.7 percent annual equivalent in Dec 2017-Feb 2018 while core prices increased at 2.8 percent. In the fortieth wave, CPI prices increased at 1.2 percent annual equivalent in Mar 2018 while core prices increased at 2.4 percent. In the forty-first wave, CPI prices increased at 3.0 percent annual equivalent in Apr-May 2018 while core prices increased at 2.4 percent. In the forty-second wave, CPI prices increased at 1.8 percent in Jun-Sep 2018 while core prices increased at 1.8 percent. In the forty-third wave, CPI prices increased at annual equivalent 2.4 percent in Oct 2018 while core prices increased at 2.4 percent. In the forty-fourth wave, CPI prices changed at minus 0.4 percent annual equivalent in Nov 2018-Jan 2019 while core prices increased at 2.4 percent. In the forty-fifth wave, CPI prices increased at 4.5 percent annual equivalent in Feb-Apr 2019 while core prices increased at 2.0 percent. In the forty-sixth wave, CPI prices increased at 0.6 percent annual equivalent in May-Jun 2019 while core prices increased at 1.8 percent. In the forty-seventh wave, CPI prices increased at 2.4 percent annual equivalent in Jul 2019 while core prices increased at 2.4 percent. In the forty-eighth wave, CPI prices increased at 1.8 percent annual equivalent in Aug-Sep 2019 while core prices increased at 2.4 percent. In the forty-ninth wave, CPI prices increased at 2.8 percent annual equivalent in Oct-Dec 2019 while core prices increased at 2.0 percent. In the fiftieth wave, CPI prices increased at 1.8 percent annual equivalent in Jan-Feb 2020 and core prices at 3.0 percent. In the fifty-first wave, CPI prices decreased at annual equivalent 4.7 percent in Mar-May 2020 while core prices decreased at 2.4 percent. In the fifty-second wave, CPI prices increased at 6.2 percent annual equivalent in Jun-Jul 2020 and core prices increased at 4.9 percent. In the fifty-third wave, CPI prices increased at annual equivalent 3.7 percent and core prices increased at 3.7 percent in Aug-Sep 2020. In the fifty-fourth wave, CPI prices increased at 1.2 percent annual equivalent and core prices at 1.2 percent in Oct 2020. In the fifty-fifth wave, CPI prices increased at 2.4 percent annual equivalent in Nov 2020-Jan 2021 and core prices at 1.2 percent. In the fifty-sixth wave, CPI prices increased at annual equivalent 6.2 percent in Feb-Mar 2021 and core prices at 3.0 percent. In the fifty-seventh wave, CPI prices increased at annual equivalent 9.2 percent in Apr-Jun 2021 and core prices at 10.0 percent. In the fifty-eight wave, CPI prices increased at annual equivalent 4.9 percent in Jul-Sep 2021 and core prices at 3.2 percent. In the fifty-ninth wave, CPI prices increased at annual equivalent 10.0 percent in Oct-Nov 2021 while core prices increased at 6.8 percent. In the sixtieth wave, CPI prices increased at annual equivalent 8.3 percent and core prices increased at 7.0 percent in Dec 2021-Feb 2022. In the sixty-first wave, CPI prices increased at annual equivalent 15.4 percent and core prices at 3.7 percent in Mar 2022. The conclusion is that inflation accelerates and decelerates in unpredictable fashion because of shocks or risk aversion and portfolio reallocations in carry trades from zero interest rates to commodity derivatives.
Table I-5, US, Headline and Core CPI Inflation Monthly SA and 12 Months NSA ∆%
| All Items SA Month | All Items NSA 12 month | Core SA | Core NSA | |
| Mar 2022 | 1.2 | 8.5 | 0.3 | 6.5 |
| AE Mar | 15.4 | 3.7 | ||
| Feb | 0.8 | 7.9 | 0.5 | 6.4 |
| Jan | 0.6 | 7.5 | 0.6 | 6.0 |
| Dec 2021 | 0.6 | 7.0 | 0.6 | 5.5 |
| AE Dec-Feb | 8.3 | 7.0 | ||
| Nov | 0.7 | 6.8 | 0.5 | 4.9 |
| Oct | 0.9 | 6.2 | 0.6 | 4.6 |
| AE Oct-Nov | 10.0 | 6.8 | ||
| Sep | 0.4 | 5.4 | 0.3 | 4.0 |
| Aug | 0.3 | 5.3 | 0.2 | 4.0 |
| Jul | 0.5 | 5.4 | 0.3 | 4.3 |
| AE Jul-Sep | 4.9 | 3.2 | ||
| Jun | 0.9 | 5.4 | 0.8 | 4.5 |
| May | 0.7 | 5.0 | 0.7 | 3.8 |
| Apr | 0.6 | 4.2 | 0.9 | 3.0 |
| AE Apr-Jun | 9.2 | 10.0 | ||
| Mar | 0.6 | 2.6 | 0.3 | 1.6 |
| Feb | 0.4 | 1.7 | 0.2 | 1.3 |
| AE ∆% Feb-Mar | 6.2 | 3.0 | ||
| Jan | 0.2 | 1.4 | 0.0 | 1.4 |
| Dec 2020 | 0.3 | 1.4 | 0.1 | 1.6 |
| Nov | 0.1 | 1.2 | 0.2 | 1.6 |
| AE ∆% Nov-Jan | 2.4 | 1.2 | ||
| Oct | 0.1 | 1.2 | 0.1 | 1.6 |
| AE ∆% Oct | 1.2 | 1.2 | ||
| Sep | 0.2 | 1.4 | 0.2 | 1.7 |
| Aug | 0.4 | 1.3 | 0.4 | 1.7 |
| AE ∆% Aug-Sep | 3.7 | 3.7 | ||
| Jul | 0.5 | 1.0 | 0.6 | 1.6 |
| Jun | 0.5 | 0.6 | 0.2 | 1.2 |
| AE ∆% Jun-Jul | 6.2 | 4.9 | ||
| May | -0.1 | 0.1 | -0.1 | 1.2 |
| Apr | -0.8 | 0.3 | -0.4 | 1.4 |
| Mar | -0.3 | 1.5 | -0.1 | 2.1 |
| AE ∆% Mar-May | -4.7 | -2.4 | ||
| Feb | 0.1 | 2.3 | 0.2 | 2.4 |
| Jan | 0.2 | 2.5 | 0.3 | 2.3 |
| AE ∆% Jan-Feb | 1.8 | 3.0 | ||
| Dec 2019 | 0.2 | 2.3 | 0.1 | 2.3 |
| Nov | 0.2 | 2.1 | 0.2 | 2.3 |
| Oct | 0.3 | 1.8 | 0.2 | 2.3 |
| AE ∆% Oct-Dec | 2.8 | 2.0 | ||
| Sep | 0.2 | 1.7 | 0.2 | 2.4 |
| Aug | 0.1 | 1.7 | 0.2 | 2.4 |
| AE ∆% Aug-Sep | 1.8 | 2.4 | ||
| Jul | 0.2 | 1.8 | 0.2 | 2.2 |
| AE ∆% Jul | 2.4 | 2.4 | ||
| Jun | 0.0 | 1.6 | 0.2 | 2.1 |
| May | 0.1 | 1.8 | 0.1 | 2.0 |
| AE ∆% May-Jun | 0.6 | 1.8 | ||
| Apr | 0.4 | 2.0 | 0.2 | 2.1 |
| Mar | 0.4 | 1.9 | 0.2 | 2.0 |
| Feb | 0.3 | 1.5 | 0.1 | 2.1 |
| AE ∆% Feb-Apr | 4.5 | 2.0 | ||
| Jan | 0.0 | 1.6 | 0.2 | 2.2 |
| Dec 2018 | 0.0 | 1.9 | 0.2 | 2.2 |
| Nov | -0.1 | 2.2 | 0.2 | 2.2 |
| AE ∆% Nov-Jan | -0.4 | 2.4 | ||
| Oct | 0.2 | 2.5 | 0.2 | 2.1 |
| AE ∆% Oct | 2.4 | 2.4 | ||
| Sep | 0.2 | 2.3 | 0.2 | 2.2 |
| Aug | 0.2 | 2.7 | 0.1 | 2.2 |
| Jul | 0.1 | 2.9 | 0.2 | 2.4 |
| Jun | 0.1 | 2.9 | 0.1 | 2.3 |
| AE ∆% Jun-Sep | 1.8 | 1.8 | ||
| May | 0.3 | 2.8 | 0.2 | 2.2 |
| Apr | 0.2 | 2.5 | 0.2 | 2.1 |
| AE ∆% Apr-May | 3.0 | 2.4 | ||
| Mar | 0.1 | 2.4 | 0.2 | 2.1 |
| AE ∆% Mar | 1.2 | 2.4 | ||
| Feb | 0.3 | 2.2 | 0.2 | 1.8 |
| Jan | 0.4 | 2.1 | 0.3 | 1.8 |
| Dec 2017 | 0.2 | 2.1 | 0.2 | 1.8 |
| AE ∆% Dec-Feb | 3.7 | 2.8 | ||
| Nov | 0.3 | 2.2 | 0.1 | 1.7 |
| Oct | 0.1 | 2.0 | 0.3 | 1.8 |
| AE ∆% Oct-Nov | 2.4 | 2.4 | ||
| Sep | 0.5 | 2.2 | 0.1 | 1.7 |
| Aug | 0.4 | 1.9 | 0.2 | 1.7 |
| AE ∆% Aug-Sep | 5.5 | 1.8 | ||
| Jul | 0.0 | 1.7 | 0.1 | 1.7 |
| AE ∆% Jul | 0.0 | 1.2 | ||
| Jun | 0.1 | 1.6 | 0.1 | 1.7 |
| May | -0.1 | 1.9 | 0.1 | 1.7 |
| AE ∆% May-Jun | 0.0 | 1.2 | ||
| Apr | 0.1 | 2.2 | 0.1 | 1.9 |
| AE ∆% Apr | 1.2 | 1.2 | ||
| Mar | 0.0 | 2.4 | 0.0 | 2.0 |
| AE ∆% Mar | 0.0 | 0.0 | ||
| Feb | 0.2 | 2.7 | 0.2 | 2.2 |
| AE ∆% Feb | 2.4 | 2.4 | ||
| Jan | 0.4 | 2.5 | 0.2 | 2.3 |
| AE ∆% Jan | 4.9 | 2.4 | ||
| Dec 2016 | 0.3 | 2.1 | 0.2 | 2.2 |
| Nov | 0.1 | 1.7 | 0.1 | 2.1 |
| AE ∆% Nov-Dec | 2.4 | 1.8 | ||
| Oct | 0.2 | 1.6 | 0.1 | 2.1 |
| Sep | 0.3 | 1.5 | 0.2 | 2.2 |
| AE ∆% Sep-Oct | 3.0 | 1.8 | ||
| Aug | 0.2 | 1.1 | 0.2 | 2.3 |
| AE ∆ Aug | 2.4 | 2.4 | ||
| Jul | -0.1 | 0.8 | 0.1 | 2.2 |
| AE ∆% Jul | -1.2 | 1.2 | ||
| Jun | 0.3 | 1.0 | 0.2 | 2.2 |
| May | 0.2 | 1.0 | 0.2 | 2.2 |
| AE ∆% May-Jun | 3.0 | 2.4 | ||
| Apr | 0.4 | 1.1 | 0.3 | 2.1 |
| Mar | 0.3 | 0.9 | 0.2 | 2.2 |
| AE ∆% Mar-Apr | 4.3 | 3.0 | ||
| Feb | -0.1 | 1.0 | 0.2 | 2.3 |
| AE ∆% Feb | -1.2 | 2.4 | ||
| Jan | 0.0 | 1.4 | 0.2 | 2.2 |
| Dec 2015 | -0.1 | 0.7 | 0.1 | 2.1 |
| AE ∆% Dec-Jan | -0.6 | 1.8 | ||
| Nov | 0.1 | 0.5 | 0.2 | 2.0 |
| Oct | 0.1 | 0.2 | 0.2 | 1.9 |
| AE ∆% Oct-Nov | 1.2 | 2.4 | ||
| Sep | -0.2 | 0.0 | 0.2 | 1.9 |
| Aug | 0.0 | 0.2 | 0.1 | 1.8 |
| AE ∆% Aug-Sep | -1.2 | 1.8 | ||
| Jul | 0.2 | 0.2 | 0.2 | 1.8 |
| AE ∆% Jul | 2.4 | 2.4 | ||
| Jun | 0.3 | 0.1 | 0.2 | 1.8 |
| May | 0.3 | 0.0 | 0.1 | 1.7 |
| Apr | 0.1 | -0.2 | 0.2 | 1.8 |
| Mar | 0.3 | -0.1 | 0.2 | 1.8 |
| Feb | 0.3 | 0.0 | 0.2 | 1.7 |
| AE ∆% Feb-Jun | 3.2 | 2.2 | ||
| Jan | -0.6 | -0.1 | 0.1 | 1.6 |
| Dec 2014 | -0.3 | 0.8 | 0.1 | 1.6 |
| Nov | -0.2 | 1.3 | 0.1 | 1.7 |
| AE ∆% Nov-Jan | -4.3 | 1.2 | ||
| Oct | 0.0 | 1.7 | 0.2 | 1.8 |
| Sep | 0.0 | 1.7 | 0.2 | 1.7 |
| AE ∆% Sep-Oct | 0.0 | 2.4 | ||
| Aug | 0.0 | 1.7 | 0.1 | 1.7 |
| AE ∆% Aug | 0.0 | 1.2 | ||
| Jul | 0.1 | 2.0 | 0.2 | 1.9 |
| Jun | 0.1 | 2.1 | 0.1 | 1.9 |
| May | 0.2 | 2.1 | 0.2 | 2.0 |
| Apr | 0.2 | 2.0 | 0.2 | 1.8 |
| AE ∆% Apr-Jul | 1.8 | 2.1 | ||
| Mar | 0.2 | 1.5 | 0.2 | 1.7 |
| Feb | 0.1 | 1.1 | 0.1 | 1.6 |
| Jan | 0.2 | 1.6 | 0.1 | 1.6 |
| Dec 2013 | 0.3 | 1.5 | 0.2 | 1.7 |
| AE ∆% Dec-Mar | 2.4 | 1.8 | ||
| Nov | 0.2 | 1.2 | 0.2 | 1.7 |
| Oct | 0.1 | 1.0 | 0.1 | 1.7 |
| AE ∆% Oct-Nov | 1.8 | 1.8 | ||
| Sep | 0.0 | 1.2 | 0.2 | 1.7 |
| Aug | 0.2 | 1.5 | 0.2 | 1.8 |
| Jul | 0.2 | 2.0 | 0.2 | 1.7 |
| Jun | 0.2 | 1.8 | 0.2 | 1.6 |
| May | 0.0 | 1.4 | 0.1 | 1.7 |
| AE ∆% May-Sep | 1.4 | 2.2 | ||
| Apr | -0.2 | 1.1 | 0.0 | 1.7 |
| Mar | -0.3 | 1.5 | 0.1 | 1.9 |
| AE ∆% Mar-Apr | -3.0 | 0.6 | ||
| Feb | 0.5 | 2.0 | 0.1 | 2.0 |
| AE ∆% Feb | 6.2 | 1.2 | ||
| Jan | 0.2 | 1.6 | 0.2 | 1.9 |
| Dec 2012 | 0.0 | 1.7 | 0.2 | 1.9 |
| Nov | -0.2 | 1.8 | 0.1 | 1.9 |
| AE ∆% Nov-Jan | 0.0 | 2.0 | ||
| Oct | 0.3 | 2.2 | 0.2 | 2.0 |
| Sep | 0.5 | 2.0 | 0.2 | 2.0 |
| Aug | 0.6 | 1.7 | 0.1 | 1.9 |
| AE ∆% Aug-Oct | 5.7 | 2.0 | ||
| Jul | 0.0 | 1.4 | 0.2 | 2.1 |
| Jun | -0.1 | 1.7 | 0.2 | 2.2 |
| May | -0.2 | 1.7 | 0.1 | 2.3 |
| AE ∆% May-Jul | -1.2 | 2.0 | ||
| Apr | 0.2 | 2.3 | 0.2 | 2.3 |
| Mar | 0.2 | 2.7 | 0.2 | 2.3 |
| Feb | 0.2 | 2.9 | 0.1 | 2.2 |
| AE ∆% Feb-Apr | 2.4 | 2.0 | ||
| Jan | 0.3 | 2.9 | 0.2 | 2.3 |
| Dec 2011 | 0.0 | 3.0 | 0.2 | 2.2 |
| AE ∆% Dec-Jan | 1.8 | 2.4 | ||
| Nov | 0.2 | 3.4 | 0.2 | 2.2 |
| Oct | 0.1 | 3.5 | 0.2 | 2.1 |
| AE ∆% Oct-Nov | 1.8 | 2.4 | ||
| Sep | 0.2 | 3.9 | 0.1 | 2.0 |
| Aug | 0.3 | 3.8 | 0.3 | 2.0 |
| Jul | 0.3 | 3.6 | 0.2 | 1.8 |
| AE ∆% Jul-Sep | 3.2 | 2.4 | ||
| Jun | 0.0 | 3.6 | 0.2 | 1.6 |
| May | 0.3 | 3.6 | 0.2 | 1.5 |
| AE ∆% May-Jun | 1.8 | 2.4 | ||
| Apr | 0.5 | 3.2 | 0.1 | 1.3 |
| Mar | 0.5 | 2.7 | 0.1 | 1.2 |
| Feb | 0.3 | 2.1 | 0.2 | 1.1 |
| Jan | 0.3 | 1.6 | 0.2 | 1.0 |
| AE ∆% Jan-Apr | 4.9 | 1.8 | ||
| Dec 2010 | 0.4 | 1.5 | 0.1 | 0.8 |
| Nov | 0.3 | 1.1 | 0.1 | 0.8 |
| Oct | 0.3 | 1.2 | 0.1 | 0.6 |
| Sep | 0.2 | 1.1 | 0.1 | 0.8 |
| Aug | 0.1 | 1.1 | 0.1 | 0.9 |
| Jul | 0.2 | 1.2 | 0.1 | 0.9 |
| Jun | 0.0 | 1.1 | 0.1 | 0.9 |
| May | -0.1 | 2.0 | 0.1 | 0.9 |
| Apr | 0.0 | 2.2 | 0.0 | 0.9 |
| Mar | 0.0 | 2.3 | 0.0 | 1.1 |
| Feb | -0.1 | 2.1 | 0.0 | 1.3 |
| Jan | 0.1 | 2.6 | -0.1 | 1.6 |
Note: Core: excluding food and energy; AE: annual equivalent
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/
The behavior of the US consumer price index NSA from 2001 to 2022 is in Chart I-20. Inflation in the US is very dynamic without deflation risks that would justify symmetric inflation targets. The hump in 2008 originated in the carry trade from interest rates dropping to zero into commodity futures. There is no other explanation for the increase of the Cushing OK Crude Oil Future Contract 1 from $55.64/barrel on Jan 9, 2007 to $145.29/barrel on July 3, 2008 during deep global recession, collapsing under a panic of flight into government obligations and the US dollar to $37.51/barrel on Feb 13, 2009 and then rising by carry trades to $113.93/barrel on Apr 29, 2012, collapsing again and then recovering again to $105.23/barrel, all during mediocre economic recovery with peaks and troughs influenced by bouts of risk appetite and risk aversion (data from the US Energy Information Administration EIA, https://www.eia.gov/). The unwinding of the carry trade with the TARP announcement of toxic assets in banks channeled cheap money into government obligations (see Cochrane and Zingales 2009). There is sharp increase in 2021 and into 2022.
Chart I-20, US, Consumer Price Index, NSA, 2001-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-21 provides 12-month percentage changes of the consumer price index from 2001 to 2022. There was no deflation or threat of deflation from 2008 into 2009. Commodity prices collapsed during the panic of toxic assets in banks. When stress tests in 2009 revealed US bank balance sheets in much stronger position, cheap money at zero opportunity cost exited government obligations and flowed into carry trades of risk financial assets. Increases in commodity prices drove again the all-items CPI with interruptions during risk aversion originating in multiple fears but especially from the sovereign debt crisis of Europe. There are sharp increases in 2021-2022.
Chart I-21, US, Consumer Price Index, 12-Month Percentage Change, NSA, 2001-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
The trend of increase of the consumer price index excluding food and energy in Chart I-22 does not reveal any threat of deflation that would justify symmetric inflation targets. There are mild oscillations in a neat upward trend.
Chart I-22, US, Consumer Price Index Excluding Food and Energy, NSA, 2001-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-23 provides 12-month percentage change of the consumer price index excluding food and energy. Past-year rates of inflation fell toward 1 percent from 2001 into 2003 because of the recession and the decline of commodity prices beginning before the recession with declines of real oil prices. Near zero interest rates with fed funds at 1 percent between Jun 2003 and Jun 2004 stimulated carry trades of all types, including in buying homes with subprime mortgages in expectation that low interest rates forever would increase home prices permanently, creating the equity that would permit the conversion of subprime mortgages into creditworthy mortgages (Gorton 2009EFM; see https://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Inflation rose and then collapsed during the unwinding of carry trades and the housing debacle of the global recession. Carry trades into 2011 and 2012 gave a new impulse to CPI inflation, all items and core. Symmetric inflation targets destabilize the economy by encouraging hunts for yields that inflate and deflate financial assets, obscuring risk/return decisions on production, investment, consumption and hiring. There is sharp increase in 2021-2022.
Chart I-23, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2001-2022
Source: US Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
Headline and core producer price indexes are in Table I-6. The headline PPI SA increased 1.9 percent in Mar 2022 and increased 15.2 percent NSA in the 12 months ending in Mar 2022. The core PPI SA increased 0.8 percent in Mar 2022 and increased 8.2 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the annual equivalent rate of 11.0 percent in the headline PPI in Jan-Apr 2011 and 3.7 percent in the core PPI. In the second wave, commodity futures prices collapsed in Jun 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline PPI inflation collapsed to 0.6 percent in May-Jun 2011 but the core annual equivalent inflation rate was higher at 2.4 percent. In the third wave, headline PPI inflation resuscitated with annual equivalent at 4.1 percent in Jul-Sep 2011 and core PPI inflation at 3.2 percent. Core PPI inflation was persistent throughout 2011, jumping from annual equivalent at 2.0 percent in the first three months of 2010 to 3.0 percent in 12 months ending in Dec 2011. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in https://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline PPI inflation of 0.0 percent in Oct-Dec 2011 and 2.0 percent in the core annual equivalent. In the fifth wave from Jan to Mar 2012, annual equivalent inflation was 3.2 percent for the headline index but 3.2 percent for the core index excluding food and energy. In the sixth wave, annual equivalent inflation in Apr-May 2012 during renewed risk aversion was minus 4.1 percent for the headline PPI and 1.8 percent for the core. In the seventh wave, continuing risk aversion caused reversal of carry trades into commodity exposures with annual equivalent headline inflation of minus 1.2 percent in Jun-Jul 2012 while core PPI inflation was at annual equivalent 3.7 percent. In the eighth wave, relaxed risk aversion because of the announcement of the impaired bond buying program or Outright Monetary Transactions (OMT) of the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that drove annual equivalent inflation of producer prices of the United States at 13.4 percent in Aug-Sep 2012 and 1.2 percent in the core index. In the ninth wave, renewed risk aversion caused annual equivalent inflation of minus 2.4 percent in Oct 2012-Dec 2012 in the headline index and 1.2 percent in the core index. In the tenth wave, annual equivalent inflation was 7.4 percent in the headline index in Jan-Feb 2013 and 1.8 percent in the core index. In the eleventh wave, annual equivalent inflation was minus 7.0 percent in Mar-Apr 2012 and 1.2 percent for the core index. In the twelfth wave, annual equivalent inflation returned at 2.7 percent in May-Aug 2013 and 1.2 percent in the core index. In the thirteenth wave, portfolio reallocations away from commodities and into equities reversed commodity carry trade with annual equivalent inflation of 0.8 percent in Sep-Nov 2013 in the headline PPI and 1.6 percent in the core. In the fourteenth wave, annual equivalent inflation returned at 5.7 percent annual equivalent for the headline index in Dec 2013-Feb 2014 and 3.7 percent for the core index. In the fifteenth wave, annual equivalent inflation was 3.7 percent for the general PPI index in Mar 2014 and 0.0 percent for the core PPI index. In the sixteenth wave, annual equivalent headline PPI inflation increased at 0.9 percent in Apr-Jul 2014 and 1.8 percent for the core PPI. In the seventeenth wave, annual equivalent inflation in Aug-Nov 2014 was minus 2.7 percent and 1.8 percent for the core index. In the eighteenth wave, annual equivalent inflation fell at 17.6 percent for the general index in Dec 2014 to Jan 2015 and increased at 3.7 percent in the core index. In the nineteenth wave, annual equivalent inflation increased at 1.2 percent in Feb 2015 and increased at 3.7 percent for the core index. In the twentieth wave, annual equivalent producer prices increased at 4.9 percent in Mar 2015 and the core at 1.2 percent. In the twenty-first wave, producer prices fell at 8.1 percent annual equivalent in Apr 2015 while the core index increased at 1.2 percent. In the twenty-second wave, producer prices increased at annual equivalent 10.7 percent in May-Jun 2015 and core producer prices at 2.8 percent. In the twenty-third wave, producer prices fell at 1.2 percent in Jul 2015 and the core index increased at 2.4 percent. In the twenty-fourth wave, annual equivalent inflation fell at 7.4 percent in Aug-Oct 2015 and the core index changed at 0.0 percent annual equivalent. In the twenty-fifth wave, annual equivalent inflation was 1.2 percent in Nov 2015 with the core at 1.2 percent. In the twenty-sixth wave, the headline PPI fell at annual equivalent 6.6 percent and the core increased at 2.0 percent in Dec 2015-Feb 2016. In the twenty-seventh wave, annual equivalent inflation was 3.7 percent for the central index in Mar-May 2016 and 1.6 percent for the core. In the twenty-eighth wave, annual equivalent inflation was 8.7 percent for the headline index in Jun 2016 and 3.7 percent for the core. In the twenty-ninth wave, producer prices changed at annual equivalent 0.0 percent in Jul 2016 and core producer prices changed at 0.0 percent. In the thirtieth wave, producer prices fell at 3.5 percent annual equivalent in Aug 2016 while core producer prices increased at 1.2 percent. In the thirty-first wave, producer prices increased at annual equivalent 6.2 percent in Sep-Oct 2016 while core prices increased at 1.8 percent. In the thirty-second wave, producer prices decreased at 2.4 percent annual equivalent in Nov 2016 and the core index increased at 1.2 percent. In the thirty-third wave, producer prices increased at 11.4 percent in Dec 2016 and the core index increased at 2.4 percent. In the thirty-fourth wave, producer prices increased at 10.0 percent in Jan 2017 while the core increased at 3.7 percent. In the thirty-fifth wave, producer prices increased at 3.7 percent in Feb 2017 while the core index increased at 1.2 percent. In the thirty-sixth wave, producer prices decreased at annual equivalent 1.2 percent in Mar 2017 while core producer prices increased at 3.7 percent. In the thirty-seventh wave, annual equivalent inflation of the headline index was at 6.2 percent in Apr 2017 and 3.7 percent for the core. In the thirty-eighth wave, producer prices fell at 11.4 percent annual equivalent in May 2017 while core producer prices changed at 0.0 percent. In the thirty-ninth wave, producer prices increased at annual equivalent 1.2 percent in Jun 2017 while core producer prices increased at 2.4 percent. In the fortieth wave, headline producer prices increased at 1.2 percent annual equivalent in Jul 2017 while core prices increased at 1.2 percent. In the forty-first wave, central producer prices increased at 8.7 percent annual equivalent in Aug-Sep 2017 while core prices changed at 0.0 percent. In the forty-second wave, producer prices increased at annual equivalent 7.4 percent in Oct-Nov 2017 while core producer prices increased at 4.9 percent. In the forty-third wave, producer prices increased at annual equivalent 2.4 percent in Dec 2017 while core prices changed at 0.0 percent. In the forty-fourth wave, producer prices increased at 2.4 percent annual equivalent in Jan 2018 while core producer prices changed at 1.2 percent. In the forty-fifth wave, producer prices increased at annual equivalent 3.7 percent in Feb 2018 while core prices increased at 2.4 percent. In the forty-sixth wave, producer prices changed at 0.0 percent annual equivalent in Mar 2018 while core prices increased at 3.7 percent. In the forty-seventh wave, producer prices changed at 0.0 percent annual equivalent in Apr 2018 while core prices increased at 2.4 percent. In the forty-eighth wave, producer prices increased at annual equivalent 4.9 percent in May 2018 while core prices increased at 1.2 percent. In the forty-ninth wave, producer prices increased at annual equivalent 1.8 percent in Jun-Jul 2018 while core prices increased at 3.0 percent. In the fiftieth wave, producer prices increased at annual equivalent 1.8 percent in Aug-Sep 2018 while core prices increased at 1.8 percent. In the fifty-first wave, producer prices increased at annual equivalent 11.4 percent in Oct 2018 while core prices increased at 3.7 percent. In the fifty-second wave, producer prices decreased at annual equivalent 7.7 percent in Nov 2018-Jan 2019 while core prices increased at 2.8 percent. In the fifty-third wave, producer prices increased at annual equivalent 8.7 percent in Feb-Apr 2019 while core prices increased at 1.6 percent. In the fifty-fourth wave, producer prices decreased at annual equivalent 4.7 percent in May-Jun 2019 while core prices increased at 0.6 percent. In the fifty-fifth wave, producer prices increased at annual equivalent 2.4 percent in Jul 2019 while core prices increased at 1.2 percent. In the fifty-sixth wave, producer prices fell at annual equivalent 1.8 percent in Aug-Sep 2019 while core prices changed at 0.0 percent. In the fifty-seventh wave, producer prices increased at annual equivalent 5.3 percent in Oct-Dec 2019 while core prices increased at 0.8 percent. In the fifty-eighth wave, producer prices changed at 0.0 percent annual equivalent in Jan 2020 while core prices changed at 0.0 percent. In the fifty-ninth wave, producer prices decreased at annual equivalent 20.3 percent in Feb-Apr 2020 while core prices increased at 2.0 percent. In the sixtieth wave, producer prices increased at annual equivalent 25.3 percent in May 2020 while core prices changed at minus 1.2 percent. In the sixty-first wave, producer prices increased at annual equivalent 5.5 percent in Jun-Jul 2020 while core prices increased at 1.2 percent. In the sixty-second wave, producer prices increased at annual equivalent 1.2 percent in Aug 2020 while core prices increased at 1.2 percent. In the sixty-third wave, producer prices increased at annual equivalent 3.7 percent in Sep-Nov 2020 while core prices increased at 1.2 percent. In the sixty-fourth wave, producer prices increased at annual equivalent 10.0 percent in Dec 2020 while core prices increased at 1.2 percent. In the sixty-fifth wave, producer prices increased at annual equivalent 16.3 percent in Jan-Mar 2021 while core producer prices increased at 4.5 percent. In the sixty-sixth wave, producer prices increased at annual equivalent 7.4 percent in Apr 2021 while core prices increased at 7.4 percent. In the sixty-seventh wave, producer prices increased at annual equivalent 14.0 percent in May-Jun 2021 while core prices increased at 8.1 percent. In the sixty-eighth wave, producer prices increased at 8.7 percent in Jul 2021 while core prices increased at 8.7 percent. In the sixty-nineth wave, producer prices increased at annual equivalent 12.7 percent in Aug 2021 while core prices increased at 6.2 percent. In the seventieth wave, producer prices increased at 15.8 percent in Sep-Nov 2021 while core prices increased at 7.0 percent. In the seventy-first wave, producer prices changed at annual equivalent 0.0 percent in Dec 2021 while core prices increased at 7.4 percent. In the seventy-second wave, producer prices increased at 21.0 percent in Jan 2022 while core prices increased at 10.0 percent. In the seventy-third wage, producer prices increased at annual equivalent 30.6 percent in Feb-Mar 2022 while core prices increased at 11.4 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.
Table I-6, US, Headline and Core PPI Inflation Monthly SA and 12-Month NSA ∆%
| Finished | Finished | Finished Core SA | Finished Core NSA | |
| Mar 2022 | 1.9 | 15.2 | 0.8 | 8.2 |
| Feb | 2.6 | 13.8 | 1.0 | 7.8 |
| AE Feb-Mar | 30.6 | 11.4 | ||
| Jan | 1.6 | 12.7 | 0.8 | 7.1 |
| AE Jan | 21.0 | 10.0 | ||
| Dec 2021 | 0.0 | 12.2 | 0.6 | 6.5 |
| AE Dec | 0.0 | 7.4 | ||
| Nov | 0.8 | 13.3 | 0.6 | 6.0 |
| Oct | 1.4 | 12.7 | 0.5 | 5.7 |
| Sep | 1.5 | 11.8 | 0.6 | 5.2 |
| AE Sep-Nov | 15.8 | 7.0 | ||
| Aug | 1.0 | 10.7 | 0.5 | 4.6 |
| AE Aug | 12.7 | 6.2 | ||
| Jul | 0.7 | 9.9 | 0.7 | 4.3 |
| AE Jul | 8.7 | 8.7 | ||
| Jun | 1.3 | 9.7 | 0.7 | 3.7 |
| May | 0.9 | 8.7 | 0.6 | 3.0 |
| AE May-Jun | 14.0 | 8.1 | ||
| Apr | 0.6 | 9.7 | 0.6 | 2.3 |
| AE Apr | 7.4 | 7.4 | ||
| Mar | 1.0 | 5.9 | 0.4 | 2.0 |
| Feb | 1.5 | 2.5 | 0.4 | 1.7 |
| Jan | 1.3 | 0.4 | 0.3 | 1.6 |
| AE Jan-Mar | 16.3 | 4.5 | ||
| Dec 2020 | 0.8 | -0.8 | 0.1 | 1.3 |
| AE Dec | 10.0 | 1.2 | ||
| Nov | 0.1 | -1.3 | 0.3 | 1.2 |
| Oct | 0.6 | -1.2 | 0.0 | 1.1 |
| Sep | 0.2 | -1.2 | 0.0 | 1.2 |
| AE Sep-Nov | 3.7 | 1.2 | ||
| Aug | 0.1 | -1.6 | 0.1 | 1.2 |
| AE Aug | 1.2 | 1.2 | ||
| Jul | 0.5 | -2.0 | 0.2 | 1.1 |
| Jun | 0.4 | -2.3 | 0.0 | 1.1 |
| AE Jun-Jul | 5.5 | 1.2 | ||
| May | 1.9 | -3.2 | -0.1 | 1.1 |
| AE May | 25.3 | -1.2 | ||
| Apr | -2.8 | -5.3 | 0.2 | 1.3 |
| Mar | -2.1 | -1.5 | 0.0 | 1.1 |
| Feb | -0.7 | 1.3 | 0.3 | 1.2 |
| AE Feb-Apr | -20.3 | 2.0 | ||
| Jan | 0.0 | 2.5 | 0.0 | 1.0 |
| AE Jan | 0.0 | 0.0 | ||
| Dec 2019 | 0.4 | 1.7 | 0.0 | 1.5 |
| Nov | 0.2 | 1.0 | 0.1 | 1.6 |
| Oct | 0.7 | -0.2 | 0.1 | 1.7 |
| AE Oct-Dec | 5.3 | 0.8 | ||
| Sep | -0.1 | -0.1 | 0.0 | 1.9 |
| Aug | -0.2 | 0.3 | 0.0 | 2.0 |
| AE Aug-Sep | -1.8 | 0.0 | ||
| Jul | 0.2 | 0.7 | 0.1 | 2.2 |
| AE Jul | 2.4 | 1.2 | ||
| Jun | -0.5 | 0.5 | 0.1 | 2.3 |
| May | -0.3 | 1.3 | 0.0 | 2.5 |
| AE May-Jun | -4.7 | 0.6 | ||
| Apr | 0.8 | 2.1 | 0.1 | 2.5 |
| Mar | 0.8 | 1.4 | 0.2 | 2.7 |
| Feb | 0.5 | 0.5 | 0.1 | 2.7 |
| AE Feb-Apr | 8.7 | 1.6 | ||
| Jan | -0.7 | 0.4 | 0.4 | 2.9 |
| Dec 2018 | -0.4 | 1.3 | 0.1 | 2.6 |
| Nov | -0.9 | 2.0 | 0.2 | 2.6 |
| AE Nov-Jan | -7.7 | 2.8 | ||
| Oct | 0.9 | 3.7 | 0.3 | 2.5 |
| AE Oct | 11.4 | 3.7 | ||
| Sep | 0.2 | 3.2 | 0.1 | 2.8 |
| Aug | 0.1 | 3.7 | 0.2 | 2.6 |
| AE Aug-Sep | 1.8 | 1.8 | ||
| Jul | 0.2 | 4.3 | 0.3 | 2.4 |
| Jun | 0.1 | 4.1 | 0.2 | 2.1 |
| AE Jun-Jul | 1.8 | 3.0 | ||
| May | 0.4 | 4.1 | 0.1 | 2.1 |
| AE May | 4.9 | 1.2 | ||
| Apr | 0.0 | 2.4 | 0.2 | 1.9 |
| AE Apr | 0.0 | 2.4 | ||
| Mar | 0.0 | 3.0 | 0.3 | 2.0 |
| AE Mar | 0.0 | 3.7 | ||
| Feb | 0.3 | 2.7 | 0.2 | 2.0 |
| AE Feb | 3.7 | 2.4 | ||
| Jan | 0.2 | 2.9 | 0.1 | 1.8 |
| AE Jan | 2.4 | 1.2 | ||
| Dec 2017 | 0.2 | 3.2 | 0.0 | 2.0 |
| AE Dec | 2.4 | 0.0 | ||
| Nov | 0.9 | 4.2 | 0.3 | 2.1 |
| Oct | 0.3 | 2.9 | 0.5 | 2.0 |
| AE Oct-Nov | 7.4 | 4.9 | ||
| Sep | 0.8 | 3.3 | -0.1 | 1.7 |
| Aug | 0.6 | 3.0 | 0.1 | 1.8 |
| AE Aug-Sep | 8.7 | 0.0 | ||
| Jul | 0.1 | 2.1 | 0.1 | 1.8 |
| AE Jul | 1.2 | 1.2 | ||
| Jun | 0.1 | 2.1 | 0.2 | 1.7 |
| AE Jun | 1.2 | 2.4 | ||
| May | -1.0 | 2.8 | 0.0 | 1.9 |
| AE May | -11.4 | 0.0 | ||
| Apr | 0.5 | 4.0 | 0.3 | 2.0 |
| AE Apr | 6.2 | 3.7 | ||
| Mar | -0.1 | 3.8 | 0.3 | 1.8 |
| AE Mar | -1.2 | 3.7 | ||
| Feb | 0.3 | 3.8 | 0.1 | 1.6 |
| AE Feb | 3.7 | 1.2 | ||
| Jan | 0.8 | 2.9 | 0.3 | 1.7 |
| AE Jan | 10.0 | 3.7 | ||
| Dec 2016 | 0.9 | 1.9 | 0.2 | 1.7 |
| AE Dec | 11.4 | 2.4 | ||
| Nov | -0.2 | 0.4 | 0.1 | 1.6 |
| AE Nov | -2.4 | 1.2 | ||
| Oct | 0.6 | 0.7 | 0.2 | 1.6 |
| Sep | 0.4 | -0.1 | 0.1 | 1.4 |
| AE Sep-Oct | 6.2 | 1.8 | ||
| Aug | -0.3 | -1.9 | 0.1 | 1.4 |
| AE Aug | -3.5 | 1.2 | ||
| Jul | 0.0 | -2.0 | 0.0 | 1.2 |
| AE Jul | 0.0 | 0.0 | ||
| Jun | 0.7 | -2.0 | 0.3 | 1.5 |
| AE Jun | 8.7 | 3.7 | ||
| May | 0.4 | -2.2 | 0.1 | 1.6 |
| Apr | 0.3 | -1.5 | 0.2 | 1.6 |
| Mar | 0.2 | -2.3 | 0.1 | 1.5 |
| AE Mar-May | 3.7 | 1.6 | ||
| Feb | -0.7 | -2.0 | 0.1 | 1.5 |
| Jan | -0.3 | -1.2 | 0.3 | 1.7 |
| Dec 2015 | -0.7 | -2.7 | 0.1 | 1.8 |
| AE Dec-Feb | -6.6 | 2.0 | ||
| Nov | 0.1 | -3.3 | 0.1 | 1.7 |
| AE Nov | 1.2 | 1.2 | ||
| Oct | -0.3 | -4.0 | -0.1 | 1.8 |
| Sep | -1.2 | -4.1 | 0.1 | 2.1 |
| Aug | -0.4 | -3.1 | 0.0 | 2.1 |
| AE ∆% Aug-Oct | -7.4 | 0.0 | ||
| Jul | -0.1 | -2.8 | 0.2 | 2.3 |
| AE ∆% Jul | -1.2 | 2.4 | ||
| Jun | 0.6 | -2.6 | 0.5 | 2.3 |
| May | 1.1 | -2.9 | 0.2 | 2.0 |
| AE ∆% May-Jun | 10.7 | 2.8 | ||
| Apr | -0.7 | -4.5 | 0.1 | 2.0 |
| AE ∆% Apr | -8.1 | 1.2 | ||
| Mar | 0.4 | -3.3 | 0.1 | 2.1 |
| AE ∆% Mar | 4.9 | 1.2 | ||
| Feb | 0.1 | -3.2 | 0.3 | 1.9 |
| AE ∆% Feb | 1.2 | 3.7 | ||
| Jan | -1.8 | -3.0 | 0.5 | 1.7 |
| Dec 2014 | -1.4 | -0.6 | 0.1 | 1.7 |
| AE ∆% Dec-Jan | -17.6 | 3.7 | ||
| Nov | -0.3 | 1.1 | 0.0 | 2.0 |
| Oct | -0.3 | 1.8 | 0.3 | 2.2 |
| Sep | -0.3 | 2.2 | 0.1 | 2.1 |
| Aug | 0.0 | 2.3 | 0.2 | 1.9 |
| AE ∆% Aug-Nov | -2.7 | 1.8 | ||
| July | 0.0 | 2.9 | 0.1 | 1.9 |
| Jun | 0.2 | 2.8 | 0.2 | 1.9 |
| May | -0.3 | 2.5 | 0.2 | 1.8 |
| Apr | 0.4 | 3.1 | 0.1 | 1.7 |
| AE ∆% Apr-Jul | 0.9 | 1.8 | ||
| Mar | 0.3 | 1.8 | 0.0 | 1.7 |
| AE ∆% Mar | 3.7 | 0.0 | ||
| Feb | 0.2 | 1.3 | 0.1 | 1.9 |
| Jan | 0.8 | 1.6 | 0.4 | 2.0 |
| Dec 2013 | 0.4 | 1.4 | 0.4 | 1.6 |
| AE ∆% Dec-Feb | 5.7 | 3.7 | ||
| Nov | 0.3 | 0.8 | 0.2 | 1.3 |
| Oct | 0.2 | 0.3 | 0.1 | 1.2 |
| Sep | -0.3 | 0.2 | 0.1 | 1.2 |
| AE ∆% Sep-Nov | 0.8 | 1.6 | ||
| Aug | 0.5 | 1.2 | 0.1 | 1.2 |
| Jul | -0.1 | 2.1 | 0.1 | 1.3 |
| Jun | 0.1 | 2.3 | 0.1 | 1.6 |
| May | 0.4 | 1.6 | 0.1 | 1.7 |
| AE ∆% May-Aug | 2.7 | 1.2 | ||
| Apr | -0.6 | 0.5 | 0.1 | 1.7 |
| Mar | -0.6 | 1.1 | 0.1 | 1.7 |
| AE ∆% Mar-Apr | -7.0 | 1.2 | ||
| Feb | 0.6 | 1.8 | 0.2 | 1.8 |
| Jan | 0.6 | 1.5 | 0.1 | 1.8 |
| AE ∆% Jan-Feb | 7.4 | 1.8 | ||
| Dec 2012 | -0.2 | 1.4 | 0.0 | 2.1 |
| Nov | -0.5 | 1.4 | 0.2 | 2.2 |
| Oct | 0.1 | 2.3 | 0.1 | 2.2 |
| AE ∆% Oct-Dec | -2.4 | 1.2 | ||
| Sep | 0.9 | 2.1 | 0.0 | 2.4 |
| Aug | 1.2 | 1.9 | 0.2 | 2.6 |
| AE ∆% Aug-Sep | 13.4 | 1.2 | ||
| Jul | 0.2 | 0.5 | 0.4 | 2.6 |
| Jun | -0.4 | 0.7 | 0.2 | 2.6 |
| AE ∆% Jun-Jul | -1.2 | 3.7 | ||
| May | -0.6 | 0.6 | 0.1 | 2.7 |
| Apr | -0.1 | 1.8 | 0.2 | 2.7 |
| AE ∆% Apr-May | -4.1 | 1.8 | ||
| Mar | 0.1 | 2.7 | 0.2 | 2.9 |
| Feb | 0.3 | 3.4 | 0.2 | 3.1 |
| Jan | 0.4 | 4.1 | 0.4 | 3.1 |
| AE ∆% Jan-Mar | 3.2 | 3.2 | ||
| Dec 2011 | -0.1 | 4.7 | 0.2 | 3.0 |
| Nov | 0.3 | 5.7 | 0.1 | 3.0 |
| Oct | -0.2 | 5.9 | 0.2 | 2.9 |
| AE ∆% Oct-Dec | 0.0 | 2.0 | ||
| Sep | 0.9 | 7.1 | 0.3 | 2.8 |
| Aug | -0.3 | 6.6 | 0.2 | 2.7 |
| Jul | 0.4 | 7.2 | 0.3 | 2.7 |
| AE ∆% Jul-Sep | 4.1 | 3.2 | ||
| Jun | -0.4 | 7.0 | 0.3 | 2.3 |
| May | 0.5 | 7.1 | 0.1 | 2.1 |
| AE ∆% May-Jun | 0.6 | 2.4 | ||
| Apr | 0.9 | 6.7 | 0.3 | 2.3 |
| Mar | 0.7 | 5.7 | 0.3 | 2.0 |
| Feb | 1.1 | 5.5 | 0.2 | 1.8 |
| Jan | 0.8 | 3.7 | 0.4 | 1.6 |
| AE ∆% Jan-Apr | 11.0 | 3.7 | ||
| Dec 2010 | 0.9 | 3.8 | 0.2 | 1.4 |
| Nov | 0.4 | 3.4 | 0.0 | 1.2 |
| Oct | 0.8 | 4.3 | 0.0 | 1.6 |
| Sep | 0.3 | 3.9 | 0.2 | 1.6 |
| Aug | 0.6 | 3.3 | 0.1 | 1.3 |
| Jul | 0.1 | 4.1 | 0.1 | 1.5 |
| Jun | -0.3 | 2.7 | 0.1 | 1.1 |
| May | 0.0 | 5.1 | 0.3 | 1.3 |
| Apr | 0.0 | 5.4 | 0.0 | 0.9 |
| Mar | 0.7 | 5.9 | 0.2 | 0.9 |
| Feb | -0.7 | 4.1 | 0.1 | 1.0 |
| Jan | 1.0 | 4.5 | 0.2 | 1.0 |
Note: Core: excluding food and energy; AE: annual equivalent
Source: US Bureau of Labor Statistics https://www.bls.gov/ppi/data.htm
The US producer price index NSA from 2000 to 2022 is in Chart I-24. There are two episodes of decline of the PPI during recessions in 2001 and in 2008. Barsky and Kilian (2004) consider the 2001 episode as one in which real oil prices were declining when recession began. Recession and the fall of commodity prices instead of generalized deflation explain the behavior of US inflation in 2008. There is similar collapse of producer prices into 2015 as in 2009 caused by the drop of
commodity prices. There is sharp increase in 2021 and into 2022.
Chart I-24, US, Producer Price Index, NSA, 2000-2022
Source: US Bureau of Labor Statistics
Twelve-month percentage changes of the PPI NSA from 2000 to 2022 are in Chart I-25. It may be possible to forecast trends a few months in the future under adaptive expectations but turning points are almost impossible to anticipate especially when related to fluctuations of commodity prices in response to risk aversion. In a sense, monetary policy has been tied to behavior of the PPI in the negative 12-month rates in 2001 to 2003 and then again in 2009 to 2010. There is similar sharp decline of inflation into 2015 caused by the drop of commodities. Monetary policy following deflation fears caused by commodity price fluctuations would introduce significant volatility and risks in financial markets and eventually in consumption and investment. There is sharp increase in 2021 followed by still high increases in 2022.
Chart I-25, US, Producer Price Index, 12-Month Percentage Change NSA, 2000-2022
Source: US Bureau of Labor Statistics
The US PPI excluding food and energy from 2000 to 2022 is in Chart I-26. There is here again a smooth trend of inflation instead of prolonged deflation as in Japan. Prices jump in 2021-2022.
Chart I-26, US, Producer Price Index Excluding Food and Energy, NSA, 2000-2022
Source: US Bureau of Labor Statistics
Twelve-month percentage changes of the producer price index excluding food and energy are in Chart I-27. Fluctuations replicate those in the headline PPI. There is an evident trend of increase of 12-month rates of core PPI inflation in 2011 but lower rates in 2012-2014. Prices rose less rapidly into 2015-2018 as during earlier fluctuations. Twelve-month rates decrease in the final segment 2019-2020, increasing in 2021-2022.
Chart I-27, US, Producer Price Index Excluding Food and Energy, NSA, 12-Month Percentage Changes, 2000-2022
Source: US Bureau of Labor Statistics
There are sharper oscillations of the producer price index of finished energy goods in Chart I-28. The carry trade caused sharp increases in the global recession after 2007. Prices of energy goods increased sharply in 2021 and into 2022.
Chart I-28, US, Producer Price Index Finished Energy Goods, NSA, 2000-2022
Source: US Bureau of Labor Statistics
Twelve-month percentage changes of the producer price index of finished energy goods are in Chart I-29. There is sharp increase in 2021 of highest dimensions since 2000.
Chart I-29, US, Producer Price Index Finished Energy Goods, 12-Month Percentage Change, NSA, 2000-2022
Source: US Bureau of Labor Statistics
Effective with the January 2014 Producer Price Index (PPI) data release in February 2014 (https://www.bls.gov/news.release/archives/ppi_02192014.pdf 8), “BLS transitions from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. This shift results in significant changes to the PPI news release, as well as other documents available from PPI. The transition to the FD-ID system is the culmination of a long-standing PPI objective to improve the current SOP aggregation system by incorporating PPIs for services, construction, government purchases, and exports. In comparison to the SOP system, the FD-ID system more than doubles PPI coverage of the United States economy to over 75 percent of in-scope domestic production. The FD-ID system was introduced as a set of experimental indexes in January 2011. Nearly all new FD-ID goods, services, and construction indexes provide historical data back to either November 2009 or April 2010, while the indexes for goods that correspond with the historical SOP indexes go back to the 1970s or earlier.”
Headline and core final demand producer price indexes are in Table I-6B. The headline FD PPI SA increased 1.4 percent in Mar 2022 and increased 11.2 percent NSA in the 12 months ending in Mar 2022. The core FD PPI SA increased 1.0 percent in Mar 2022 and increased 9.2 percent in 12 months. Analysis of annual equivalent rates of change shows inflation waves similar to those worldwide. In the first wave, the absence of risk aversion from the sovereign risk crisis in Europe motivated the carry trade from zero interest rates into commodity futures that caused the average equivalent rate of 7.4 percent in the headline FD PPI in Jan-Apr 2011 and 4.6 percent in the core FD PPI. In the second wave, commodity futures prices collapsed in Jun 2011 with the return of risk aversion originating in the sovereign risk crisis of Europe. The annual equivalent rate of headline FD PPI inflation collapsed to 2.4 percent in May-Jun 2011 but the core annual equivalent inflation rate was at 2.4 percent. In the third wave, headline FD PPI inflation resuscitated with annual equivalent at 3.2 percent in Jul-Sep 2011 and core PPI inflation at 3.2 percent. Core FD PPI inflation was persistent throughout 2011, from annual equivalent at 4.6 percent in the first four months of 2011 to 2.6 percent in 12 months ending in Dec 2011. Unconventional monetary policy is based on the proposition that core rates reflect more fundamental inflation and are thus better predictors of the future. In practice, the relation of core and headline inflation is as difficult to predict as future inflation (see IIID Supply Shocks in https://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html). In the fourth wave, risk aversion originating in the lack of resolution of the European debt crisis caused unwinding of carry trades with annual equivalent headline FD PPI inflation of minus 0.8 percent in Oct-Dec 2011 and minus 0.4 percent in the core annual equivalent. In the fifth wave from Jan to Mar 2012, annual equivalent inflation was 3.7 percent for the headline index and 3.7 percent for the core index excluding food and energy. In the sixth wave, annual equivalent inflation in Apr-May 2012 during renewed risk aversion was 1.2 percent for the headline FD PPI and 3.0 percent for the core. In the seventh wave, continuing risk aversion caused reversal of carry trades into commodity exposures with annual equivalent headline inflation of minus 2.4 percent in Jun-Jul 2012 while core FD PPI inflation was at annual equivalent minus 1.2 percent. In the eighth wave, relaxed risk aversion because of the announcement of the impaired bond buying program or Outright Monetary Transactions (OMT) of the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry trades that drove annual equivalent inflation of final demand producer prices of the United States at 6.2 percent in Aug-Sep 2012 and 1.2 percent in the core index. In the ninth wave, renewed risk aversion caused annual equivalent inflation of 0.8 percent in Oct 2011-Dec 2012 in the headline index and 2.8 percent in the core index. In the tenth wave, annual equivalent inflation was 3.0 percent in the headline index in Jan-Feb 2013 and 0.6 percent in the core index. In the eleventh wave, annual equivalent price change was minus 1.2 percent in Mar-Apr 2013 and 2.4 percent for the core index. In the twelfth wave, annual equivalent inflation returned at 1.8 percent in May-Aug 2013 and 1.6 percent in the core index. In the thirteenth wave, portfolio reallocations away from commodities and into equities reversed commodity carry trade with annual equivalent inflation of 1.6 percent in Sep-Nov 2013 in the headline FD PPI and 2.0 percent in the core. In the fourteenth wave, annual equivalent inflation was 2.4 percent annual equivalent for the headline index in Dec 2013-Feb 2014 and 1.6 percent for the core index. In the fifteenth wave, annual equivalent inflation increased to 2.4 percent in the headline FD PPI and 2.7 percent in the core in Mar-Jul 2014. In the sixteenth wave, annual equivalent inflation was minus 1.2 percent for the headline FD index and minus 0.6 percent for the core FD index in Aug-Sep 2014. In the seventeenth wave, annual equivalent inflation was 2.4 percent for the headline FD and 4.9 percent for the core FD in Oct 2014. In the eighteenth wave, annual equivalent inflation was minus 3.0 percent for the headline FDI and 1.2 percent for the core in Nov-Dec 2014. In the nineteenth wave, annual equivalent inflation was minus 6.4 percent for the general index and minus 2.4 percent for the core in Jan-Feb 2015. In the twentieth wave, annual equivalent inflation was 2.4 percent for the general index in Mar 2015 and 1.2 percent for the core. In the twenty-first wave, final demand prices decreased at annual equivalent 2.4 percent for the headline index in Apr 2015 and changed at 0.0 percent for the core index. In the twenty-second wave, annual equivalent inflation returned at 3.7 percent for the headline index in May-Jul 2015 and at 2.4 percent for the core index. In the twenty-third wave, the headline final demand index fell at 2.4 percent annual equivalent in Aug 2015 and the core changed at 0.0 percent annual equivalent. In the twenty-fourth wave, FD prices fell at annual equivalent 4.1 percent in Sep-Oct 2015. In the twenty-fifth wave, FD prices increased at 1.2 percent annual equivalent in Nov 2015. In the twenty-sixth wave, FD prices decreased at 1.2 percent annual equivalent in Dec 2015. In the twenty-seventh wave, FD prices increased at 4.9 percent annual equivalent in Jan 2016 and the core FD increased at 6.2 percent. In the twenty-eighth wave, FD prices fell at annual equivalent 1.8 percent in Feb-Mar 2016 while the core decreased at 0.6 percent. In the twenty-ninth wave, FD prices increased at 3.7 percent annual equivalent in Apr-Jun 2016 and core FD increased at 2.4 percent. In the thirtieth wave, final demand prices decreased at 1.2 percent in annual equivalent in Jul 2016 while the core decreased at 1.2 percent. In the thirty-first wave, final demand prices decreased at annual equivalent 2.4 percent in Aug 2016 and the core changed at 0.0 percent. In the thirty-second wave, final demand prices increased at annual equivalent 3.7 percent in Sep 2016 while core final demand increased at 2.4 percent. In the thirty-third wave, final demand prices increased at 3.7 percent and core final demand prices increased at 1.2 percent in Oct 2016. In the thirty-fourth wave, final demand producer prices increased at 3.0 percent annual equivalent in Nov-Dec 2016 while the core increased at 2.4 percent. In the thirty-fifth wave, final demand producer prices increased at 4.9 percent in Jan 2017 while core prices increased at 4.9 percent. In the thirty-sixth wave, final demand prices changed at 0.0 percent annual equivalent in Feb 2017 while the core index decreased at 1.2 percent. In the thirty-seventh wave, final demand prices increased at 2.4 percent annual equivalent in Mar 2017 while the core index increased at 2.4 percent. In the thirty-eighth wave, final demand prices increased at 4.9 percent in Apr 2017 while the core increased at 4.9 percent. In the thirty-ninth wave, final demand prices changed at annual equivalent 0.0 percent in May-Jun 2017 while core prices increased at 2.4 percent. In the fortieth wave, final demand prices increased at 1.2 percent annual equivalent in Jul 2017 while core prices increased at 1.2 percent. In the forty-first wave, final demand prices increased at 4.9 percent annual equivalent in Aug-Nov 2017 while core prices increased at 2.7 percent. In the forty-second wave, final demand prices increased at annual equivalent 1.2 percent in Dec 2017 while core prices changed at 0.0 percent. In the forty-third wave, final demand prices increased at annual equivalent 3.7 percent in Jan-Mar 2018 while core prices increased at 4.1 percent. In the forty-fourth wave, final demand prices increased at 2.8 percent in Apr-Jun 2018 while core prices increased at 3.2 percent. In the forty-fifth wave, final demand prices increased at 1.2 percent in Jul-Aug 2018 while core prices increased at 1.2 percent. In the forty-sixth wave, final demand prices increased at 5.5 percent annual equivalent in Sep-Oct 2018 while core prices increased at 4.3 percent. In the forty-seventh wave, final demand prices decreased at 2.4 percent annual equivalent in Nov 2018 while core prices increased at 2.4 percent. In the forty-eighth wave, final demand prices decreased at 1.8 percent annual equivalent in Dec 2018-Jan 2019 while core prices increased at 1.8 percent. In the forty-ninth wave, final demand prices increased at annual equivalent 4.5 percent in Feb-Apr 2019 while core prices increased at 2.4 percent. In the fiftieth wave, final demand prices increased at 1.2 percent in May 2019 while core prices changed at 2.4 percent. In the fifty-first wave, final demand prices increased at annual equivalent 0.8 percent in Jun-Aug 2019 while core prices increased at 3.0 percent. In the fifty-second wave, final demand prices decreased at annual equivalent 3.5 percent in Sep 2019 while core prices decreased at 2.4 percent. In the fifty-third wave, final demand prices increased at 0.6 percent in Oct-Nov 2019 while core prices decreased at 0.6 percent. In the fifty-fourth wave, final demand prices increased at annual equivalent 3.7 percent in Dec 2019-Jan 2020 while core prices increased at 3.7 percent. In the fifty-fifth wave, final demand prices decreased at annual equivalent 8.8 percent in Feb-Apr 2020 while core prices decreased at 2.4 percent. In the fifty-sixth wave, final demand prices increased at annual equivalent 6.2 percent in May 2020 while core prices changed at 0.0 percent. In the fifty-seventh wave, final demand prices increased at annual equivalent 3.7 percent in Jun 2020 while core prices increased at 2.4 percent. In the fifty-eighth wave, final demand prices increased at annual equivalent 7.4 percent in Jul 2020 while core prices increased at 6.2 percent. In the fifty-ninth wave, final demand prices increased at 4.5 percent in Aug-Oct 2020 while core prices increased at 3.7 percent. In the sixtieth wave, final demand prices increased at annual equivalent 1.8 percent in Nov-Dec 2020 while core prices increased at 0.6 percent. In the sixty-first wave, final demand prices increased at annual equivalent 10.9 percent in Jan-Mar 2021 while core prices increased at 7.4 percent. In the sixty-second wave, final demand prices increased at annual equivalent 12.7 percent in Apr-May 2021 while core prices increased at 11.4 percent. In the sixty-third wave, final demand prices increased at 10.7 percent annual equivalent in Jun-Jul 2021 while core prices increased at 10.0 percent. In the sixty-fourth wave, final demand prices increased at annual equivalent 8.7 percent in Aug-Oct 2021 while core prices increased at 5.7 percent. In the sixty-fifth wave, final demand prices increased at annual equivalent 12.7 percent in Nov 2021 while core prices increased at 11.4 percent. In the sixty-first wave, final demand prices increased at annual equivalent 7.4 percent in Dec 2021 while core prices increased at 7.4 percent. In the sixty-second wave, final demand prices increased at annual equivalent 14.9 percent in Jan-Mar 2022 while core prices increased at 9.6 percent. It is almost impossible to forecast PPI inflation and its relation to CPI inflation. “Inflation surprise” by monetary policy could be proposed to climb along a downward sloping Phillips curve, resulting in higher inflation but lower unemployment (see Kydland and Prescott 1977, Barro and Gordon 1983 and past comments of this blog http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). The architects of monetary policy would require superior inflation forecasting ability compared to forecasting naivety by everybody else. In practice, we are all naïve in forecasting inflation and other economic variables and events.
Table I-6B, US, Headline and Core Final Demand Producer Price Inflation Monthly SA and 12-Month NSA ∆%
| Final Demand | Final Demand | Final Demand Core SA | Final Demand Core NSA | |
| Mar 2022 | 1.4 | 11.2 | 1.0 | 9.2 |
| Feb | 0.9 | 10.3 | 0.4 | 8.7 |
| Jan | 1.2 | 10.1 | 0.9 | 8.6 |
| AE Jan-Mar | 14.9 | 9.6 | ||
| Dec 2021 | 0.6 | 10.0 | 0.6 | 8.6 |
| AE Dec | 7.4 | 7.4 | ||
| Nov | 1.0 | 9.9 | 0.9 | 8.0 |
| AE Nov | 12.7 | 11.4 | ||
| Oct | 0.7 | 8.9 | 0.4 | 7.0 |
| Sep | 0.5 | 8.8 | 0.2 | 7.0 |
| Aug | 0.9 | 8.7 | 0.8 | 7.1 |
| AE Aug-Oct | 8.7 | 5.7 | ||
| Jul | 0.9 | 8.0 | 1.0 | 6.4 |
| Jun | 0.8 | 7.6 | 0.6 | 5.8 |
| AE Jun-Jul | 10.7 | 10.0 | ||
| May | 1.0 | 7.0 | 0.8 | 5.3 |
| Apr | 1.0 | 6.5 | 1.0 | 4.6 |
| AE Apr-May | 12.7 | 11.4 | ||
| Mar | 0.7 | 4.1 | 0.6 | 3.0 |
| Feb | 0.7 | 3.0 | 0.3 | 2.6 |
| Jan | 1.2 | 1.6 | 0.9 | 1.9 |
| AE ∆% Jan-Mar | 10.9 | 7.4 | ||
| Dec 2020 | 0.3 | 0.8 | 0.2 | 1.4 |
| Nov | 0.0 | 0.8 | -0.1 | 1.5 |
| AE ∆% Nov-Dec | 1.8 | 0.6 | ||
| Oct | 0.6 | 0.6 | 0.5 | 1.2 |
| Sep | 0.3 | 0.3 | 0.3 | 1.0 |
| Aug | 0.2 | -0.3 | 0.1 | 0.5 |
| AE ∆% Aug-Oct | 4.5 | 3.7 | ||
| Jul | 0.6 | -0.3 | 0.5 | 0.6 |
| AE ∆% Jul | 7.4 | 6.2 | ||
| Jun | 0.3 | -0.7 | 0.2 | 0.3 |
| AE ∆% Jun | 3.7 | 2.4 | ||
| May | 0.5 | -1.1 | 0.0 | 0.3 |
| AE ∆% May | 6.2 | 0.0 | ||
| Apr | -1.3 | -1.5 | -0.4 | 0.3 |
| Mar | -0.4 | 0.3 | 0.1 | 1.1 |
| Feb | -0.6 | 1.1 | -0.3 | 1.2 |
| AE ∆% Feb-Apr | -8.8 | -2.4 | ||
| Jan | 0.3 | 2.0 | 0.3 | 1.6 |
| Dec 2019 | 0.3 | 1.4 | 0.3 | 1.3 |
| AE ∆% Dec-Jan | 3.7 | 3.7 | ||
| Nov | -0.2 | 1.0 | -0.3 | 1.2 |
| Oct | 0.3 | 1.0 | 0.2 | 1.6 |
| AE ∆% Oct-Nov | 0.6 | -0.6 | ||
| Sep | -0.3 | 1.5 | -0.2 | 2.0 |
| AE ∆% Sep | -3.5 | -2.4 | ||
| Aug | 0.2 | 1.9 | 0.3 | 2.3 |
| Jul | 0.2 | 1.6 | 0.1 | 2.2 |
| Jun | -0.2 | 1.6 | 0.1 | 2.2 |
| AE ∆% Jun-Aug | 0.8 | 3.0 | ||
| May | 0.1 | 2.1 | 0.2 | 2.4 |
| AE ∆% May | 1.2 | 2.4 | ||
| Apr | 0.5 | 2.4 | 0.4 | 2.5 |
| Mar | 0.3 | 2.0 | 0.1 | 2.3 |
| Feb | 0.3 | 1.9 | 0.1 | 2.5 |
| AE ∆% Feb-Apr | 4.5 | 2.4 | ||
| Jan | -0.3 | 1.9 | 0.1 | 2.6 |
| Dec 2018 | 0.0 | 2.6 | 0.2 | 2.9 |
| AE ∆% Dec-Jan | -1.8 | 1.8 | ||
| Nov | -0.2 | 2.6 | 0.2 | 2.7 |
| AE ∆% Nov | -2.4 | 2.4 | ||
| Oct | 0.7 | 3.1 | 0.6 | 2.7 |
| Sep | 0.2 | 2.7 | 0.1 | 2.6 |
| AE ∆% Sep-Oct | 5.5 | 4.3 | ||
| Aug | 0.1 | 3.0 | 0.0 | 2.6 |
| Jul | 0.1 | 3.4 | 0.2 | 2.8 |
| AE ∆% Jul-Aug | 1.2 | 1.2 | ||
| Jun | 0.3 | 3.3 | 0.3 | 2.7 |
| May | 0.3 | 3.1 | 0.3 | 2.4 |
| Apr | 0.1 | 2.7 | 0.2 | 2.4 |
| AE ∆% Apr-Jun | 2.8 | 3.2 | ||
| Mar | 0.3 | 2.9 | 0.3 | 2.7 |
| Feb | 0.3 | 2.8 | 0.3 | 2.5 |
| Jan | 0.3 | 2.6 | 0.4 | 2.2 |
| AE ∆% Jan-Mar | 3.7 | 4.1 | ||
| Dec 2017 | 0.1 | 2.5 | 0.0 | 2.2 |
| AE ∆% Dec | 1.2 | 0.0 | ||
| Nov | 0.4 | 3.0 | 0.2 | 2.3 |
| Oct | 0.4 | 2.8 | 0.4 | 2.4 |
| Sep | 0.4 | 2.6 | 0.1 | 2.2 |
| Aug | 0.4 | 2.4 | 0.2 | 2.2 |
| AE ∆% Aug-Nov | 4.9 | 2.7 | ||
| Jul | 0.1 | 2.0 | 0.1 | 1.9 |
| AE ∆% Jul | 1.2 | 1.2 | ||
| Jun | 0.1 | 1.9 | 0.1 | 1.8 |
| May | -0.1 | 2.3 | 0.3 | 2.0 |
| AE ∆% May-Jun | 0.0 | 2.4 | ||
| Apr | 0.4 | 2.5 | 0.4 | 1.9 |
| AE ∆% Apr | 4.9 | 4.9 | ||
| Mar | 0.2 | 2.2 | 0.2 | 1.5 |
| AE ∆% Mar | 2.4 | 2.4 | ||
| Feb | 0.0 | 2.0 | -0.1 | 1.3 |
| AE ∆% Feb | 0.0 | -1.2 | ||
| Jan | 0.4 | 1.7 | 0.4 | 1.4 |
| AE ∆% Jan | 4.9 | 4.9 | ||
| Dec 2016 | 0.3 | 1.7 | 0.1 | 1.7 |
| Nov | 0.2 | 1.3 | 0.3 | 1.7 |
| AE ∆% Nov-Dec | 3.0 | 2.4 | ||
| Oct | 0.3 | 1.1 | 0.1 | 1.5 |
| AE ∆% Oct | 3.7 | 1.2 | ||
| Sep | 0.3 | 0.6 | 0.2 | 1.2 |
| AE ∆% Sep | 3.7 | 2.4 | ||
| Aug | -0.2 | 0.0 | 0.0 | 1.0 |
| AE ∆% Aug | -2.4 | 0.0 | ||
| July | -0.1 | 0.0 | -0.1 | 0.9 |
| AE ∆% Jul | -1.2 | -1.2 | ||
| Jun | 0.5 | 0.2 | 0.4 | 1.2 |
| May | 0.2 | 0.0 | 0.0 | 1.2 |
| Apr | 0.2 | 0.2 | 0.2 | 1.1 |
| AE ∆% Apr-Jun | 3.7 | 2.4 | ||
| Mar | 0.0 | -0.1 | -0.1 | 1.1 |
| Feb | -0.3 | 0.1 | 0.0 | 1.3 |
| AE ∆% Mar-Feb | -1.8 | -0.6 | ||
| Jan | 0.4 | 0.0 | 0.5 | 0.8 |
| AE ∆% Jan | 4.9 | 6.2 | ||
| Dec 2015 | -0.1 | -1.1 | 0.2 | 0.2 |
| AE ∆% Dec | -1.2 | 2.4 | ||
| Nov | 0.1 | -1.3 | 0.1 | 0.3 |
| AE ∆% Nov | 1.2 | 1.2 | ||
| Oct | -0.3 | -1.4 | -0.2 | 0.2 |
| Sep | -0.4 | -1.1 | -0.1 | 0.7 |
| AE ∆% Sep-Oct | -4.1 | -1.8 | ||
| Aug | -0.2 | -1.0 | 0.0 | 0.6 |
| AE ∆% Aug | -2.4 | 0.0 | ||
| Jul | 0.2 | -0.7 | 0.2 | 0.8 |
| Jun | 0.3 | -0.5 | 0.3 | 1.1 |
| May | 0.4 | -0.8 | 0.1 | 0.7 |
| AE ∆% May-Jul | 3.7 | 2.4 | ||
| Apr | -0.2 | -1.1 | 0.0 | 1.0 |
| AE ∆% Apr | -2.4 | 0.0 | ||
| Mar | 0.2 | -0.9 | 0.1 | 0.8 |
| AE ∆% Mar | 2.4 | 1.2 | ||
| Feb | -0.5 | -0.5 | -0.4 | 1.0 |
| Jan | -0.6 | 0.0 | 0.0 | 1.7 |
| AE ∆% Jan-Feb | -6.4 | -2.4 | ||
| Dec 2014 | -0.3 | 0.9 | 0.2 | 2.0 |
| Nov | -0.2 | 1.3 | 0.0 | 1.7 |
| AE ∆% Nov-Dec | -3.0 | 1.2 | ||
| Oct | 0.2 | 1.5 | 0.4 | 1.9 |
| AE ∆% Oct | 2.4 | 4.9 | ||
| Sep | -0.2 | 1.6 | -0.1 | 1.6 |
| Aug | 0.0 | 1.9 | 0.0 | 1.9 |
| AE ∆% Aug-Sep | -1.2 | -0.6 | ||
| Jul | 0.4 | 1.9 | 0.5 | 1.9 |
| Jun | -0.1 | 1.8 | 0.0 | 1.6 |
| May | 0.2 | 2.1 | 0.3 | 2.1 |
| Apr | 0.1 | 1.8 | 0.0 | 1.5 |
| Mar | 0.4 | 1.6 | 0.3 | 1.6 |
| AE ∆% Mar-Jul | 2.4 | 2.7 | ||
| Feb | 0.2 | 1.2 | 0.2 | 1.6 |
| Jan | 0.3 | 1.3 | 0.2 | 1.4 |
| Dec 2013 | 0.1 | 1.2 | 0.0 | 1.2 |
| AE ∆% Dec-Feb | 2.4 | 1.6 | ||
| Nov | 0.2 | 1.1 | 0.2 | 1.4 |
| Oct | 0.2 | 1.3 | 0.2 | 1.7 |
| Sep | 0.0 | 1.1 | 0.1 | 1.6 |
| AE ∆% Sep-Nov | 1.6 | 2.0 | ||
| Aug | 0.1 | 1.7 | 0.0 | 1.8 |
| Jul | 0.2 | 2.0 | 0.3 | 1.7 |
| Jun | 0.4 | 1.7 | 0.4 | 1.3 |
| May | -0.1 | 0.9 | -0.3 | 0.9 |
| AE ∆% May-Aug | 1.8 | 1.6 | ||
| Apr | -0.2 | 0.9 | 0.2 | 1.3 |
| Mar | 0.0 | 1.3 | 0.2 | 1.5 |
| AE ∆% Mar-Apr | -1.2 | 2.4 | ||
| Feb | 0.2 | 1.6 | 0.0 | 1.4 |
| Jan | 0.3 | 1.6 | 0.1 | 1.7 |
| AE ∆% Jan-Feb | 3.0 | 0.6 | ||
| Dec 2012 | 0.0 | 1.9 | 0.1 | 2.0 |
| Nov | 0.1 | 1.7 | 0.5 | 1.8 |
| Oct | 0.1 | 1.9 | 0.1 | 1.6 |
| AE ∆% Oct-Dec | 0.8 | 2.8 | ||
| Sep | 0.7 | 1.5 | 0.3 | 1.4 |
| Aug | 0.3 | 1.2 | -0.1 | 1.2 |
| AE ∆% Aug-Sep | 6.2 | 1.2 | ||
| Jul | -0.1 | 1.0 | -0.1 | 1.7 |
| Jun | -0.3 | 1.3 | -0.1 | 1.9 |
| AE ∆% Jun-Jul | -2.4 | -1.2 | ||
| May | -0.1 | 1.6 | 0.2 | 2.2 |
| Apr | 0.3 | 2.0 | 0.3 | 2.1 |
| AE ∆% Apr-May | 1.2 | 3.0 | ||
| Mar | 0.2 | 2.4 | 0.2 | 2.3 |
| Feb | 0.3 | 2.8 | 0.3 | 2.6 |
| Jan | 0.4 | 3.1 | 0.4 | 2.5 |
| AE ∆% Jan-Mar | 3.7 | 3.7 | ||
| Dec 2011 | -0.1 | 3.2 | 0.0 | 2.6 |
| Nov | 0.3 | 3.7 | 0.2 | 2.7 |
| Oct | -0.4 | 3.7 | -0.3 | 2.7 |
| AE ∆% Oct-Dec | -0.8 | -0.4 | ||
| Sep | 0.4 | 4.5 | 0.2 | 2.9 |
| Aug | 0.2 | 4.4 | 0.4 | 3.0 |
| Jul | 0.2 | 4.5 | 0.2 | 2.7 |
| AE ∆% Jul-Sep | 3.2 | 3.2 | ||
| Jun | 0.1 | 4.3 | 0.2 | 2.6 |
| May | 0.3 | 4.2 | 0.2 | 2.3 |
| AE ∆% May-Jun | 2.4 | 2.4 | ||
| Apr | 0.5 | 4.2 | 0.3 | 2.5 |
| Mar | 0.7 | 4.0 | 0.5 | NA |
| Feb | 0.6 | 3.3 | 0.3 | NA |
| Jan | 0.6 | 2.4 | 0.4 | NA |
| AE ∆% Jan-Apr | 7.4 | 4.6 | ||
| Dec 2010 | 0.3 | 2.8 | 0.1 | NA |
| Nov | 0.3 | 2.6 | 0.1 | NA |
| Oct | 0.4 | NA | 0.1 | NA |
| Sep | 0.3 | NA | 0.2 | NA |
| Aug | 0.2 | NA | 0.0 | NA |
| Jul | 0.2 | NA | 0.2 | NA |
| Jun | -0.2 | NA | -0.1 | NA |
| May | 0.2 | NA | 0.3 | NA |
| Apr | 0.3 | NA | NA | NA |
| Mar | 0.1 | NA | NA | NA |
| Feb | -0.2 | NA | NA | NA |
| Jan | 0.9 | NA | NA | NA |
| Dec 2009 | 0.1 |
Note: Core: excluding food and energy; AE: annual equivalent
Source: US Bureau of Labor Statistics https://www.bls.gov/ppi/data.htm
Twelve-month percentage changes of the FD PPI from 2010 to 2022 are in Chart I-25B. There are fluctuations in the rates with evident trend of decline to more subdued inflation. Reallocations of investment portfolios of risk financial assets from commodities to stocks explain much lower FD PPI inflation and higher FD PPI inflation in the current reversal.
Chart I-24B, US, Final Demand Producer Price Index, NSA, 2009-2022
Source: US Bureau of Labor Statistics
Twelve-month percentage changes of the FD PPI from 2010 to 2022 are in Chart I-25B. There are fluctuations in the rates with evident trend of decline to more subdued inflation. Reallocations of investment portfolios of risk financial assets from commodities to stocks explain much lower FD PPI inflation and higher FD PPI inflation in the current reversal.
Chart I-25B, US, Final Demand Producer Price Index, 12-Month Percentage Change NSA, 2010-2022
Source: US Bureau of Labor Statistics
The core FD PPI NSA is in Chart I-26B. The behavior is similar to the headline index but with less fluctuation.
Chart I-26B, US, Final Demand Producer Price Index Excluding Food and Energy, NSA, 2009-2022
Source: US Bureau of Labor Statistics
Percentage changes in 12 months of the core FD PPI are in Chart I-27B. There are fluctuations in 12-month percentage changes but with evident declining trend to more moderate inflation followed by sharp increase in inflation.
Chart I-27B, US, Final Demand Producer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2010-2022
Source: US Bureau of Labor Statistics
The energy FD PPI NSA is in Chart I-28B. The index increased during the reposition of carry trades after the discovery of lack of toxic assets in banks that caused flight away from risk financial assets into government obligations of the US (Cochrane and Zingales 2009). Alternating risk aversion and appetite with reallocations among classes of risk financial assets explain the behavior of the index after late 2010.
Chart I-28B, US, Final Demand Energy Producer Price Index, NSA, 2009-2022
Source: US Bureau of Labor Statistics
Twelve-month percentage changes of the FD energy PPI are in Chart I-29B. Rates moderated from late 2010 to the present. There are multiple negative rates. Investors create and reverse carry trades from zero interest rates to derivatives of commodities in accordance with relative risk evaluations of classes of risk financial assets.
Chart I-29B, US, Final Demand Energy Producer Price Index, 12-Month Percentage Change, NSA, 2010-2022
Source: US Bureau of Labor Statistics
Table I-7 provides 12-month percentage changes of the CPI all items, CPI core and CPI housing from 2001 to 2022. There is no evidence in these data supporting symmetric inflation targets that would only induce greater instability in inflation, interest rates and financial markets. Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval (1.99, 2.0). Symmetric targets appear to have been abandoned in a favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output.
Table I-7, CPI All Items, CPI Core and CPI Housing, 12-Month Percentage Change, NSA 2001-2022
| CPI All Items | CPI Core ex Food and Energy | CPI Housing | |
| Year | Mar | Mar | Mar |
| 2001 | 2.9 | 2.7 | 4.5 |
| 2002 | 1.5 | 2.4 | 2.1 |
| 2003 | 3.0 | 1.7 | 2.9 |
| 2004 | 1.7 | 1.6 | 2.0 |
| 2005 | 3.1 | 2.3 | 3.3 |
| 2006 | 3.4 | 2.1 | 3.7 |
| 2007 | 2.8 | 2.5 | 3.4 |
| 2008 | 4.0 | 2.4 | 3.0 |
| 2009 | -0.4 | 1.8 | 1.4 |
| 2010 | 2.3 | 1.1 | -0.6 |
| 2011 | 2.7 | 1.2 | 0.8 |
| 2012 | 2.7 | 2.3 | 1.7 |
| 2013 | 1.5 | 1.9 | 1.9 |
| 2014 | 1.5 | 1.7 | 2.8 |
| 2015 | -0.1 | 1.8 | 1.9 |
| 2016 | 0.9 | 2.2 | 2.1 |
| 2017 | 2.4 | 2.0 | 3.1 |
| 2018 | 2.4 | 2.1 | 3.0 |
| 2019 | 1.9 | 2.0 | 2.9 |
| 2020 | 1.5 | 2.1 | 2.4 |
| 2021 | 2.6 | 1.6 | 2.1 |
| 2022 | 8.5 | 6.5 | 6.4 |
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi
Chart CPI-H provides 12 months percentage changes of the US Consumer Price Index from 1981 to 2022. The increase of 8.5 percent of the US CPI in the 12 months ending in Mar 2022 is the highest since 8.9 percent in Dec 1981 in the beginning adjustment from the Great Inflation.
Chart CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-2022
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Both the US and Japan experienced high rates of inflation during the US Great Inflation of the 1970s (see http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, http://www.johnbtaylor.com/ http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). It is difficult to justify unconventional monetary policy because of risks of deflation similar to that experienced in Japan. Fear of deflation as had occurred during the Great Depression and in Japan was used as an argument for the first round of unconventional monetary policy with 1 percent interest rates from Jun 2003 to Jun 2004. The 1 percent interest rate combined with quantitative easing in the form of withdrawal of supply of 30-year securities by suspension of the auction of 30-year Treasury bonds with the intention of reducing mortgage rates. For fear of deflation, see Pelaez and Pelaez, International Financial Architecture (2005), 18-28, and Pelaez and Pelaez, The Global Recession Risk (2007), 83-95. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.htm
Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart VI-1B for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart VI-1B cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s. The loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy. This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises frm the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”
The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:
“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”
Yellen (2014Aug22) states that “Historically, slack has accounted for only a small portion of the fluctuations in inflation. Indeed, unusual aspects of the current recovery may have shifted the lead-lag relationship between a tightening labor market and rising inflation pressures in either direction.”
Chart VI-1B provides the tortuous Phillips Circuit of Brazil from 1963 to 1987. There were no reliable consumer price index and unemployment data in Brazil for that period. Chart VI-1B used the more reliable indicator of inflation, the wholesale price index, and idle capacity of manufacturing as a proxy of unemployment in large urban centers.
Chart VI1-B, Brazil, Phillips Circuit, 1963-1987
Source: ©Carlos Manuel Pelaez, Cruzado e o Austral: Análise das Reformas Monetárias do Brasil e da Argentina. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.
In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):
“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”
Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and re the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+re). Thus, g = [(r/re) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dre>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:
W = Y/r (1)
Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022.
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